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 |
| DOIs | |
| Publication status | Published - 1 Sep 2017 |
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Keywords
- Airport congestion
- Capacity choice
- Congestion pricing
- Market power
- Self-financing infrastructure
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Cost recovery of congested infrastructure under market power. / Verhoef, Erik T.
In: Journal of Urban Economics, Vol. 101, 01.09.2017, p. 45-56.Research output: Contribution to Journal › Article › Academic › peer-review
TY - JOUR
T1 - Cost recovery of congested infrastructure under market power
AU - Verhoef, Erik T.
PY - 2017/9/1
Y1 - 2017/9/1
N2 - 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.
AB - 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.
KW - Airport congestion
KW - Capacity choice
KW - Congestion pricing
KW - Market power
KW - Self-financing infrastructure
UR - http://www.scopus.com/inward/record.url?scp=85021260910&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85021260910&partnerID=8YFLogxK
U2 - 10.1016/j.jue.2017.06.004
DO - 10.1016/j.jue.2017.06.004
M3 - Article
VL - 101
SP - 45
EP - 56
JO - Journal of Urban Economics
JF - Journal of Urban Economics
SN - 0094-1190
ER -