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Rivalrous Benefit Taxation: The Independent Viability of Separate Agencies or Firms

Author

Listed:
  • Aaron S. Edlin

    (Department of Economics, University of California at Berkeley)

  • Mario Epelbaum

    (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))

Abstract

We ask when firms with increasing returns can cover their costs independently by charging two-part tariffs (TPT's)---a condition we call independent viability. To answer, we develop notions of substitutability and complementarity that account for the total value of goods and use them to find the maximum extractable surplus. We then show that independent viability is a sufficient condition for existence of a general equilibrium in which regulated natural monopolies use TPT's. Independent viability also guarantees efficiency when the increasing returns arise solely from fixed costs. For arbitrary technologies, it ensures that a Second Welfare Theorem holds.

Suggested Citation

  • Aaron S. Edlin & Mario Epelbaum, 1993. "Rivalrous Benefit Taxation: The Independent Viability of Separate Agencies or Firms," Working Papers 9303, Centro de Investigacion Economica, ITAM.
    • Handle: RePEc:cie:wpaper:9303
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    Cited by:

    1. Moriguchi, Chiaki, 1996. "Two-part marginal cost pricing in a pure fixed cost economy," Journal of Mathematical Economics, Elsevier, vol. 26(3), pages 363-385.

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