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Title: Fairness, efficiency and the simultaneity of pricing and infrastructure capacity choice
Authors: Kopp, Andreas
Keywords: Infrastructure pricingInfrastructure investmentCost recoveryFairness
Issue Date: 2005
Publisher: EUT Edizioni Università di Trieste
ISTIEE Istituto per lo studio dei trasporti nell’integrazione economica europea
Source: Andreas Kopp, "Fairness, efficiency and the simultaneity of pricing and infrastructure capacity choice", in: European Transport / Trasporti Europei, XI (2005) 31, pp. 15-27.
Series/Report no.: European Transport / Trasporti Europei
XI (2005) 31
The primary objective of infrastructure pricing in normative economics and policy discussions is
economic efficiency This focus has led to the proposal that charges for infrastructure use should be based
on all internal and external marginal costs associated with the use of infrastructure services. Distributional
considerations, of the “fairness” of infrastructure pricing often played a supplementary role to help the
acceptance of infrastructure charging.
This paper sets out a simple framework for a quasi-market for infrastructure services with the
perspective of simultaneously determining efficient prices and levels of infrastructure investment. It is
shown that, depending on the intensity of infrastructure use, revenues generated by efficient prices do not
in all cases cover the full costs of the services. Efficient cost recovery requires an additional fixed charge.
Such a combination of a fixed charge and an efficient price per unit of service implies a distributional
conflict if users differ substantially in their demand for infrastructure services. It is shown that methods to
allocate fixed costs resolve this conflict applying standard norms of distributional justice and being
compatible with a bargaining equilibrium among heterogeneous infrastructure users.
Type: Article
ISSN: 1825-3997
Appears in Collections:European Transport / Trasporti Europei (2005) 31/XI

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