Why equity cannot be separated from efficiency: the welfare economics of progressive social pricing

Applied neoclassical microeconomists maintain that when profits are constrained, and average costs are higher than marginal costs, Ramsey "inverse elasticity" pricing optimizes static consumer welfare. However, when weighted, instead of unweighted, consumer surplus aggregation is used, the...

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Bibliographic Details
Published in:The Review of radical political economics 2001-06, Vol.33 (2), p.203-221
Main Author: Baiman, Ron
Format: Article
Language:English
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Summary:Applied neoclassical microeconomists maintain that when profits are constrained, and average costs are higher than marginal costs, Ramsey "inverse elasticity" pricing optimizes static consumer welfare. However, when weighted, instead of unweighted, consumer surplus aggregation is used, the Ramsey pricing rule becomes a "progressive social pricing rule," which suggests that under plausible conditions "direct-elasticity" rather than "inverse-elasticity" pricing is consumer welfare optimal.
ISSN:0486-6134
1552-8502
DOI:10.1177/048661340103300204