Jules Dupuit and the Early Theory of Marginal Cost Pricing

Abstract

The name of Jules Dupuit, the nineteenth-century French engineer, has been frequently invoked in contemporary economic literature concerned with marginal cost pricing (Hotelling, 1938, pp. 242-44; Nelson, 1964, pp. vii-viii) and cost-benefit analysis (Prest and Turvey, 1965, p. 683). Although his contributions in the area of utility theory (Stigler, 1950), consumers' surplus (Houghton, 1958), and price discrimination (Edgeworth, 1912) were, by any standard, remarkable for the time, his role as proclaimed mentor of the modern theory of marginal cost pricing and, more generally, of cost-benefit theory has been largely unexplored and often misunderstood. The result has been a general confusion among modern theorists concerning his achievement in this area.1 Most writers have not bothered to investigate Dupuit's original works and, following Hotelling's original attribution, have simply accepted Dupuit as the first marginal cost theorist. Ragnar Frisch, Hotelling's first critic, may be placed in this camp (Frisch, 1939, p. 145). Such neglect has probably been nurtured by the relative obscurity of his writings and by the fact that, until recently, only two of his economic articles have been translated into English (Dupuit, 1844, 1849b). The purpose of this article is to assess the nature of Dupuit's contribution to the welfare theory of marginal cost pricing. It will be concluded that although Dupuit has rightful claims as the first cost-benefit economist,