Journal Article Risk Attitude and Cost Variability in a Capacity Choice Experiment Get access Roger Sherman Roger Sherman University of Bristol and University of Virginia Search for other works by this author on: Oxford Academic Google Scholar The Review of Economic Studies, Volume 36, Issue 4, October 1969, Pages 453–466, https://doi.org/10.2307/2296470 Published: 01 October 1969 Article history Received: 15 April 1968 Revision received: 15 December 1968 Published: 01 October 1969
IF EACH AUTOMOBILE PAYS AVERAGE RATHER THAN MARGINAL SOCIAL COST OF A HIGHWAY TRIP, THERE WILL BE TOO MUCH AUTO TRAVEL DURING PERIODS OF CONGESTION. BY USING ONLY INPUTS TAXES, ADJUSTMENTS IN FARES ON ALTERNATIVE TRANSIT MODES, AND INCOME REDISTRIBUTION, RESOLVE THIS PROBLEM IN TWO WAYS: COMPLETE (FIRST-BEST) OPTIMALITY IN PEAK PERIODS AND SECOND-BEST OPTIMALITY IN OFF-PEAK PERIODS; OR FIRST-BEST OPTIMALITY IN OFF-PEAK PERIODS AND SECOND-BEST OPTIMALITY AT THE PEAK. IT IS SHOWN THAT WITH CONGESTION INTERDEPENDENCE, AS WHEN AUTOMOBILES AND BUSES CONTRIBUTE TO ONE ANOTHERS CONGESTION, THE SECOND-BEST PEAK SOLUTION CAN WARRANT AN URBAN BUS TRANSIT FARE BELOW AVERAGE COST CALLING FOR A SUBSIDY. AND UNDER A FIRST-BEST PEAK SOLUTION, INVOLVING BOTH AN INPUTS TAX AND A TRANSIT FARE ADJUSTMENT, A COMPANION SECOND-BEST OFF-PEAK TRANSIT FARE IS SHOWN THAT WILL MITIGATE THE (THEN INAPPROPRIATE BUT STILL EFFECTIVE) INPUTS TAX. /AUTHOR/
THE CONTINUING DEFECTION OF PUBLIC TRANSIT RIDERS IN BIG CITIES SUGGEST THAT EVENTUAL DOMINANCE BY PRIVATE AUTOMOBILES MAY BE INEVITABLE. A CHICAGO SURVEY HAS INDICATED THAT ONLY A VERY LARGE SUBSIDY WOULD PERSUADE A SIGNIFICANT NUMBER OF AUTO TRAVELERS TO SWITCH TO PUBLIC MODES. THERE REMAINS A QUESTION, HOWEVER, WHETHER THE PRIVATE AUTO IS GAINING ASCENDANCY BY GENUINE CONSUMER CHOICE OR BECAUSE PRIVATE COSTS DIFFER SUFFICIENTLY FROM SOCIAL COSTS TO PRODUCE A MISALLOCATION OF RESOURCES IN FAVOR OF AUTOS. A RESOURCE ALLOCATION BIAS CAN FAVOR PRIVATE AUTOS WHEN AN OWNERSHIP COMMITMENT ENCOURAGES AN EITHER/OR CHOICE BETWEEN PRIVATE AND PUBLIC MODES, ASSUMING THAT ALL TRANSIT IS CHARACTERIZED BY DECREASING COSTS, AND THAT PUBLIC TRANSIT MUST COVER ITS COST AND USES SINGLE, CONSTANT PRICES TO DO SO. POSSIBLE MISALLOCATION AMONG THE PUBLIC TRANSIT MODES WAS ALSO DEMONSTRATED. TO COMPENSATE FOR THESE ALLOCATIVE BIASES, A COLLECTIVE INSTITUTION WAS PROPOSED TO IMPLEMENT FIXED AND VARIABLE FEES. THE PROPOSED INSTITUTION WOULD ENABLE EACH CONSUMER TO PLAN HIS TRANSIT USAGE, TAKING ACCOUNT OF APPROXIMATE MARGINAL SOCIAL COSTS, AND ON THAT BASIS MAKE A FORWARD COMMITMENT EITHER TO PRIVATE OR PUBLIC TRANSIT MEANS. IN THIS WAY INVESTMENT IN TRANSIT RESOURCES, AS WELL AS SHORT-RUN USAGE, CAN BE COORDINATED. THE RISE IN ALTERNATIVE TRANSIT MODES MAKE THIS APPROACH MORE APPROPRIATE THAN THE TRADITIONAL REGULATION OF SEPARATE MONOPOLIES. THE ARGUMENT IS RELEVANT PRIMARILY FOR URBAN AREAS, WHERE SUBSTITUTION POSSIBILITIES ARE GREATEST, WHERE NECESSARY ORGANIZING IS MOST FEASIBLE, AND WHERE TRANSIT RESOURCES ALLOCATION PROBLEMS ARE MOST URGENT.
In choosing a two-part tariff, a monopoly subject to rate-of-return regulation will rely more on demand elasticities and less on marginal costs than would a welfare-maximizing firm. The rate-of-return regulated firm also will reduce its access fee or its marginal usage fee more, depending on whether adding consumers or increasing output requires marginally the most capital. In the typical case these effects will favor declining-block rate structures, which helps to explain their widespread use by rate-of-return regulated firms.
I. Short-run cost and profit risk, 450. — II. Evidence that cost fixity affects profit risk, 452. — III. Cost behavior and firm size, 454. — IV. Links between market structure and market performance, 457. — V. Summary, 462.
The Review of Economics and Statistics197153(4), 397
unemployment rates quoted in table 1; however, a fuller statement is available on request from the author. The United Kingdom figures for 1960 onward are based on a letter to the author (dated 28/1/71) revising [7]. For earlier years the official statistics have been raised by a percentage based on the revised BLS information. Percentage adjustments have also been made to the French (Institut National de la Statistique et des Etudes Economiques) and German (registration series from the ILO Yearbook of Labour Statistics) figures in similar fashion, except that the 1958 German figure was supplied by the BLS. The Swedish figures for 1953-1961 come from [3]. The Italian figures for 1954-1958 are based on the irregular ISTAT surveys adjusted for seasonality and for comparability with United States definitions (the latter on an absolute basis) on the basis of experience since 1959. The 1953 figure, for reasons described in the supplementary statement, is the average for 1954-1956. The Australian unemployment rates for 1964 and 1965 are those of the Commonwealth Statistician, while those for 1958-1963 are based on an upward percentage adjustment of the Department of Labour and National Service's registration series. The Belgian figures throughout are based on the percentage reductions indicated by [10] and [11]. The Dutch rates are those contained in the ILO Yearbook, since [10] and [11] indicated slight adjustments in conflicting directions.
Second-best pricing rules are developed for a monopoly firm facing random demands and using the welfare function. Situations of uncertain demand when prices are set before the demand level is known can result in an excess of demand and require service to be rationed. Customer behavior in specific cases is examined. Customers who value service most are found to be served first under both second-best optimal prices and the monopolistic rule. Random rationing by price and inefficient nonprice rationing, however, are shown to result in inefficient distribution of service. 21 references.