Two-part marginal cost pricing equilibria: Existence and efficiency

Donald J. Brown, Walter P. Heller and Ross M. Starr

Journal of Economic Theory, 1992, vol. 57, issue 1, 52-72

Abstract: Two-part tariffs are explored in a general equilibrium model with increasing returns to scale. Two-part marginal cost pricing equilibria are not generally Paretoefficient. The Second Fundamental Theorem of Welfare Economics may also fail. We introduce a notion of consumer surplus as the willingness to pay for access to the increasing returns good. The individuals's hookup charge is set to a fixed fraction of his consumer surplus. If aggregate consumer surplus exceeds the losses of the regulated monopoly, then exact two-part marginal cost pricing equilibria exist. Further, for efficient allocations having positive net surplus, the Second Fundamental Theorem of Welfare Economics holds.

Date: 1992
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:57:y:1992:i:1:p:52-72

DOI: 10.1016/S0022-0531(05)80040-7

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