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Increasing Returns and Decentralization Rules for the Public Sector

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  • Richard Arnott
  • Richard Harris

Abstract

This paper reviews Guesnerie's analysis that proved the marginal cost pricing doctrine was valid for firms with production sets which are convex and allow for certain types of non-convexities. We demonstrate the validity of his conjecture, and develop additional decentralization rules with non-convexities. The results imply most of the conventional wisdom concerning public sector rules with increasing returns, for instance pricing policy for public utilities and the use of cost-benefit analysis in evaluating public projects, must be strongly qualified.

Suggested Citation

  • Richard Arnott & Richard Harris, 1976. "Increasing Returns and Decentralization Rules for the Public Sector," Working Paper 225, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:225
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