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Multipart pricing of public goods

Multipart pricing of public goods Edward H. Clarke The free market has long been regarded as inferior to other institutional devices for making resource allocational decisions involving public goods. Market failure comes about because direct bargaining regarding an output which is indivisible among users must result in explicit and unanimous agreement among these users. Such agreements, which involve multilateral bargains, may require prohibitive transactions costs. In addition, the cost of policing devices to exclude those not paying may be high. If policing and exchange costs associated with a market arrangement are too high, substitute non - market devices may be preferred even though information regarding consumer valuations, generated by a market, may be sacrificed. 1 Other pricing devices, such as marginal benefit taxation, which do not result in prohibitive police or exchange costs, give rise to the classic "free rider" or revealed preference problem whereby individuals are induced to hide or understate their true preferences in order to improve their individual welfare while foregoing jointly available potential gains. 2 A device is proposed herein to resolve these revealed preference and exchange - policing cost problems. The proposed system requires an assignment by society of cost responsibilities, which differs in important respects from a usual http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Public Choice Springer Journals

Multipart pricing of public goods

Public Choice , Volume 11 (1) – May 3, 2005

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References (4)

Publisher
Springer Journals
Copyright
Copyright
Subject
Economics; Public Finance; Political Science
ISSN
0048-5829
eISSN
1573-7101
DOI
10.1007/BF01726210
Publisher site
See Article on Publisher Site

Abstract

Edward H. Clarke The free market has long been regarded as inferior to other institutional devices for making resource allocational decisions involving public goods. Market failure comes about because direct bargaining regarding an output which is indivisible among users must result in explicit and unanimous agreement among these users. Such agreements, which involve multilateral bargains, may require prohibitive transactions costs. In addition, the cost of policing devices to exclude those not paying may be high. If policing and exchange costs associated with a market arrangement are too high, substitute non - market devices may be preferred even though information regarding consumer valuations, generated by a market, may be sacrificed. 1 Other pricing devices, such as marginal benefit taxation, which do not result in prohibitive police or exchange costs, give rise to the classic "free rider" or revealed preference problem whereby individuals are induced to hide or understate their true preferences in order to improve their individual welfare while foregoing jointly available potential gains. 2 A device is proposed herein to resolve these revealed preference and exchange - policing cost problems. The proposed system requires an assignment by society of cost responsibilities, which differs in important respects from a usual

Journal

Public ChoiceSpringer Journals

Published: May 3, 2005

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