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Accounting Induced Distortions in Public Enterprise Pricing

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  • James E.T. Moncur

    (Department of Economics, University of Hawaii at Manoa)

  • Richard L. Pollock

Abstract

Certain government enterprises not subject to competition (e.g., municipal utilities, irrigation agencies) commonly aim to set prices at average cost. In periods of inflation, unadjusted accounting data understate the economic costs of fixed assets and, thus, generate inefficiently low prices and high consumption rates for outputs of these enterprises. Since dividends and taxes are not involved, the primary function of accounting is cost determination rather than profit measurement. We measure the nature and extent of undercosting and underpricing for a group of government owned water utilities in the arid western United States. Economic costs appear to be two to three times their accounting counterparts for the cases studied.

Suggested Citation

  • James E.T. Moncur & Richard L. Pollock, 1989. "Accounting Induced Distortions in Public Enterprise Pricing," Working Papers 198902, University of Hawaii at Manoa, Department of Economics.
    • Handle: RePEc:hai:wpaper:198902
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    File URL: http://www.economics.hawaii.edu/research/workingpapers/88-98/WP_89-2.pdf
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    References listed on IDEAS

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    1. Solomon Fabricant, 1978. "Accounting For Business Income Under Inflation: Current Issues And Views In The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 24(1), pages 1-24, March.
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    Cited by:

    1. Pawel Bartoszczuk, 2013. "Modelling sustainable water prices," Chapters, in: M. A. Quaddus & M. A.B. Siddique (ed.), Handbook of Sustainable Development Planning, chapter 10, pages 215-242, Edward Elgar Publishing.

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