Abstract
The Mohring–Harwitz (1962) theorem states that the degree of self-financing of congested infrastructure is equal to the elasticity of the capacity cost function in the optimum, so that under neutral scale economies exact self-financing applies. The theorem breaks down when the infrastructure is used by operators with market power, the case in point often being airlines at a congested airport. This paper proposes a regulatory scheme that restores self-financing in such cases; partially so in general, and perfectly so under specific circumstances that include (1) the satisfaction of a particular proportionality condition, and (2) either the isolation of budgets needed for subsidies to counter demand-related mark-ups, or perfectly elastic demands so that such mark-ups are zero. Moreover, exact self-financing applies in this scheme independent of the elasticity of the capacity cost function, and occurs for both parametric and “manipulable” congestion pricing.
Original language | English |
---|---|
Pages (from-to) | 45-56 |
Number of pages | 12 |
Journal | Journal of Urban Economics |
Volume | 101 |
Early online date | 20 Jun 2017 |
DOIs | |
Publication status | Published - Sept 2017 |
Keywords
- Airport congestion
- Capacity choice
- Congestion pricing
- Market power
- Self-financing infrastructure