Discussion of Professor Vickrey’s Paper

William Baumol

A chapter in Public and Private Enterprise in a Mixed Economy, 1980, pp 297-299 from Palgrave Macmillan

Abstract: Abstract Professor Levhari said the sort of very flexible pricing mechanisms which Professor Vickrey had advocated would fit well in an Arrow—Debreu general equilibrium system. But the enormous information requirements of such schemes sometimes made them difficult to use in practice. The cost of introducing such pricing schemes also had to be considered and this might considerably reduce the advantages which they promised in theory. In practice, it was often necessary to devise second-best schemes, which struck an optimal balance between the cost of complexity and the gains from market efficiency. This applied both to public and private enterprise. The question was, which of the two was more innovative in this field. He also warned that regulated private utilities sometimes used pricing flexibility and discrimination among groups of customers to add to profits rather than to improve the cost-benefit ratio. So far as investments were concerned, public enterprise might have some advantage in that it was able to undertake risky projects on an expected value basis, and to take a longer view and apply the lower and more appropriate social discount rate, rather than a higher private discount rate.

Keywords: Price Scheme; Public Enterprise; Social Discount Rate; Electricity Rate; Risky Project (search for similar items in EconPapers)
Date: 1980
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DOI: 10.1007/978-1-349-16394-6_32

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