Table Of ContentAdvanced Textbooks in Economics
Series Editors: C. J. Bliss and M.D. Intriligator
Currently Available:
Volume 2: Lectures on Microeconomic Theory (Second Revised Edition)
E. MALINVAUD
Volume 5: Applied Consumption Analysis (Second Revised Edition)
L.PHLIPS
Volume 11: Collective Choice and Social Welfare
A. K. SEN
Volume 12: General Competitive Analysis
K. J. ARROW and F. H. HAHN
Volume 14: Distributed Lags (Second Revised Edition)
P. J. DHRYMES
Volume 17: Stochastic Methods in Economics and Finance
A. G. MALLIARIS and W. A. BROCK
Volume 19: International Trade and Resource Allocation (Second Revised Edition)
A. D. WOODLAND
Volume 23: Public Enterprise Economics (Second Revised Edition)
D.BOS
Volume 24: Optimal Control Theory with Economic Applications
A. SEIERSTAD and K. SYDSAETER
Volume 25: Capital Markets and Prices: Valuing Uncertain Income Streams
C. G. KROUSE
Volume 26: History of Economic Theory
T. NEGISHI
Volume 27: Differential Equations, Stability and Chaos in Dynamic Economics
W. A. BROCK and A. G. MALLIARIS
Volume 28: Equilibrium Analysis
W. HILDENBRAND and A. P. KIRMAN
Volume 29: Economics of Insurance
K. H. BORCH f; completed by K. K. AASE and A. SANDMO
Volume 30: Microeconomics: Institutions, Equilibrium and Optimality
M. C. BLAD and H. KEIDING
Volume 31: Dynamic Optimization (Second Revised Edition)
M. L. KAMIEN and N. I. SCHWARTZ t
Volume 32: Notes and Problems in Applied General Equilibrium Economics
P.B. DIXON et al.
Volume 33: Mathematical Economic Theory: Pure and Mixed Types of Economic Mechanisms
V.L. MAKAROV, M.J. LEVIN and A.M. RUBINOV
PRICING AND PRICE REGULATION
ADVANCED TEXTBOOKS
IN ECONOMICS
VOLUME 34
Editors:
C.J. BLISS
M.D.INTRILIGATOR
Advisory Editors:
W. A. BROCK
D.W. JORGENSON
A.P.KIRMAN
J.-J. LAFFONT
J.-F. RICHARD
ELSEVIER
Amsterdam - Lausanne - New York - Oxford - Shannon - Tokyo
PRICING AND
PRICE REGULATION
An Economic Theory for Public Enterprises
and Public Utilities
DIETER BOS
Institute of Economics
University of Bonn
Germany
1994
ELSEVIER
Amsterdam - Lausanne - New York - Oxford - Shannon - Tokyo
ELSEVIER SCIENCE B.V.
Sara Burgerhartstraat 25
P.O. Box 211, 1000 AE Amsterdam, The Netherlands
Library of Congress Cataloging-in-PublicatIon Data
Bos, Dieter.
Pricing and price regulation : an economic theory for public
enterprises and public utilities / Dieter Bos. — [3rd ed.]
p. cm. — (Advanced textbooks 1n economics ; v. 34)
Includes bibliographical references and index.
ISBN 0-444-88478-5 (acid-free paper)
1. Pricing. 2. Price regulation. 3. Government business
enterprises—Prices. 4. Public utilities—Prices. I. Title.
II. Series.
HF5416.5.B67 1994
338.5'26—dc20 94-36208
CIP
First edition 1986: 'Public Enterprise Economies'
Second, revised edition 1989
Third, completely revised edition 1994: published under the title 'Pricing and Price Regulation'
ISBN: 0444 88478 5
© 1994 Elsevier Science B.V. All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or
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Special regulations for readers in the U.S.A. - This publication has been registered with the Copyright
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No responsibility is assumed by the publisher for any injury and/or damage to persons or property as a
matter of products liability, negligence or otherwise, or from any use or operation of any methods,
products, instructions or ideas contained in the material herein.
This book is printed on acid-free paper.
Printed in The Netherlands
INTRODUCTION TO THE SERIES
The aim of the series is to cover topics in economics, mathematical economics and
econometrics, at a level suitable for graduate students or final year undergraduates
specializing in economics. There is at any time much material that has become well
established in journal papers and discussion series which still awaits a clear, self-
contained treatment that can easily be mastered by students without considerable
preparation or extra reading. Leading specialists will be invited to contribute volumes
to fill such gaps. Primary emphasis will be placed on clarity, comprehensive
coverage of sensibly defined areas, and insight into fundamentals, but original ideas
will be not be excluded. Certain volumes will therefore add to existing knowledge,
while others will serve as a means of communicating both known and new ideas in
a way that will inspire and attract students not already familiar with the subject matter
concerned.
The Editors
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An Overview of the Contents of this Book
Part One The Basic Pricing Model
Presents a full-information general equilibrium model of an economy where
one sector applies special pricing rules which do not follow from unconstrained
profit maximization; the model is based on Boiteux (1956) and has been
developed further by Hagen (1979) and Bos (in this book since its first edition
1986).
Part Two Pricing Policies for Welfare Maximization
Thoroughly discusses the welfare-economic benchmark rules, for instance mar-
ginal-cost pricing, Ramsey and Feldstein pricing. Also deals with optimal
pricing in the presence of rationed labor markets, with peak-load pricing and
with the problem of optimal quality of the goods provided.
Part Three Pricing Policies for Political and Bureau-
cratic Aims
Analyzes the pricing policies of vote-seeking politicians, empire-building bu-
reaucrats, output-maximizing and energy-saving public utilities.
Part Four Price Regulation
Explains why rate-of-return regulation has recently been replaced by price-cap
regulation. Also explains why many simple rules, like yardstick regulation,
fail to achieve optimal prices, which shows that it is quite complicated to
induce managers truthfully to reveal their private information. How this can
be properly done is shown in various principal-agent models on regulation
with uncertain costs, uncertain demand and with soft budget constraints.
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