Abstract
Partial-equilibrium social welfare deadweight losses under uniform Ramsey pricing, a cost allocation pricing method, and the actual average revenues by customer class for two natural gas distribution utilities are calculated and compared. Marginal cost estimates are derived from a multiple-output translog variable cost function and used, along with three sets of demand elasticities, to generate the Ramsey prices and welfare losses. The actual and cost-allocation prices are taken directly from rate case files. The largest social welfare losses are associated with the cost-allocation rule, as high as 10–25% of revenue, despite suggestions in the literature to the contrary.
Published Version
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