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Financing a Nationalized Monopoly: Coase's Versus Hotelling-Lerner's Solution

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  • Ramón J. Torregrosa

    (Universidad de Salamanca)

Abstract

In 1946, Coase rejected Hotelling-Lerner's solution for financing a nationalized monopoly on the grounds that any tax structure could distort relative prices. In monopoly where two-part tariffs are infeasible, Coase suggested average cost pricing as a noninfenor solution to the above policy. This article shows that, in a general equilibrium model, it is possible to choose a distortionary Hotelling-Lerner's tax policy that is superior to average cost pricing.

Suggested Citation

  • Ramón J. Torregrosa, 1998. "Financing a Nationalized Monopoly: Coase's Versus Hotelling-Lerner's Solution," Public Finance Review, , vol. 26(4), pages 392-405, July.
    • Handle: RePEc:sae:pubfin:v:26:y:1998:i:4:p:392-405
    DOI: 10.1177/109114219802600406
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    References listed on IDEAS

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    1. Dierker, Egbert, 1991. "The Optimality of Boiteux-Ramsey Pricing," Econometrica, Econometric Society, vol. 59(1), pages 99-121, January.
    2. Rajiv Vohra, 1990. "On the Inefficiency of Two-Part Tariffs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 57(3), pages 415-438.
    3. Guesnerie, Roger, 1975. "Pareto Optimality in Non-Convex Economies," Econometrica, Econometric Society, vol. 43(1), pages 1-29, January.
    4. Atkinson, A. B. & Stiglitz, J. E., 1972. "The structure of indirect taxation and economic efficiency," Journal of Public Economics, Elsevier, vol. 1(1), pages 97-119, April.
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