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A Note on Marginal Valuation of Underpriced Facilities

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  • John G. Hof
  • John B. Loomis

Abstract

This article points out that in a number of previous works on public investment criteria for underpriced facilities there is an implicit assumption that individuals demand either zero units or one unit of facility capacity. It is shown that if this assumption does not hold, previously identified investment criteria may at times be in error, because within-individual ordering of consumption units is not accounted for. Several different nonprice rationing schemes are discussed in which this assumption is not made, and solutions are presented that account for within-individual ordering of consumption units.

Suggested Citation

  • John G. Hof & John B. Loomis, 1986. "A Note on Marginal Valuation of Underpriced Facilities," Public Finance Review, , vol. 14(4), pages 489-498, October.
    • Handle: RePEc:sae:pubfin:v:14:y:1986:i:4:p:489-498
    DOI: 10.1177/109114218601400408
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    References listed on IDEAS

    as
    1. Porter, Richard C, 1977. "On the Optimal Size of Underpriced Facilities," American Economic Review, American Economic Association, vol. 67(4), pages 753-760, September.
    2. Joseph Seneca, 1970. "The welfare effects of zero pricing of public goods," Public Choice, Springer, vol. 8(1), pages 101-110, March.
    3. Mumy, Gene E & Hanke, Steve H, 1975. "Public Investment Criteria for Underpriced Public Products," American Economic Review, American Economic Association, vol. 65(4), pages 712-720, September.
    4. Spence, Michael, 1977. "Nonlinear prices and welfare," Journal of Public Economics, Elsevier, vol. 8(1), pages 1-18, August.
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