Public Utility Theory

Discipline: Economics

First raised as an economic issue by American economist Harold Hotelling (1895-1973), public utility pricing refers to the setting of prices for goods and services in order to maximize the benefit to the community.

Such pricing for rail, telephone, water and electricity (which could not be carried out in normal market conditions) takes into account future demand, the state of future technology and likely costs of factors of production in the future.

Also see: compensation principle, cost-benefit analysis, pareto optimality, scitovsky paradox, social welfare function

H Hotelling, 'The General Welfare in Relation to Problems of Taxation and of Railways and Utility Rates', Econometrica, 6, 3 (July, 1938), 242-69


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