Capital Budgeting and Pricing in the French Nationalized Industries

Abstract

IT IS only recently that American economists have begun major efforts to apply welfare economics to the decisions of specific public enterprises. They have principally chosen the difficult field of water-resource policy, one of the few important areas of American public enterprise where such efforts are feasible.' Jn France, on the other hand, where the postwar public sector includes important basic industries, a major share of economists' output since the war has concerned the application of welf areeconomics principles to policy-making in these industries. The French economists have concentrated on two major problems: (a) the formulation of criteria for choice, by public enterprises, among proposed investment projects, the criteria to be applied ini allocating fixed capital budgets assigned to the enterprises; and (b) the pricing of products so as to approximate the prices of a welfare optimum in the face of complications such as a no-deficit requirement for each enterprise, peaked demand, many joint products, and production uncertainties. The French theoretical work on investment choice parallels recent American discussion; the work on peak-load pricing antedates recent American results; and some of the work on optimal pricing under the no-deficit constraint has no American counterpart. We shall examine the major French results in this paper. A survey seems particularly worthwhile because the work has had a practical impact, which we shall describe, on policy in the French nationalized industries. A majority of French economic theorists are associated in one capacity or another with the nationalized industries, some in the highest managerial posts.2 The industries themselves have sponsored much of the theoretical work, and their recent investment and pricing policies show its influence. The French economists' practical success ought to encourage those American economists who have been urging American public enterprises to adopt policies closer to those which the efficiency conditions of welfare economics imply. We shall be concerned, specifically, with the studies (many of them unpublished) performed by members of, or at the request of, Electricite de France, Charbonnages de France (coal mines), Societe Nationale des Chemins de Fer (railways), and Gaz de France.3 Under-