Ramsey Pricing: A Method for Setting Fees in Social Service Organizations

Abstract

Abstract. In non‐profit social services, there is a tendency to avoid setting prices because of the distributional concerns and incompetence on the part of some consumers. Arguments for prices and cash transfers versus in‐kind subsidies are reviewed. The appropriateness is examined of “Ramsey pricing” in achieving efficient resource allocation in a zero‐profit firm when marginal cost pricing would lead to a profit. A survey of social service agencies in Ontario, Canada, found none was using the principles of “Ramsey pricing” and most were using no fees or prices at all. Some agencies had set prices but then waived them while others set fees equivalent to services provided by nonsocial service agencies. Most view fees as supplemental additions to the budget and consequently do not consider resource allocation. “Ramsey pricing,” it is believed, could be beneficially tried by social service agencies.