Economics has played little part in the design of U.S. space transportation policy. Yet, as with terrestrial utilities, resource pricing significantly influences the efficiency of industry performance. Federal spending to operate and manage the U.S. space shuttle program represents over 60 percent of total U.S. civil space expenditure, or about $7 billion annually. Moreover, as we point out below, the long-run marginal cost of a single shuttle flight ranges from about $200 to $300 million, or some 50 percent of the entire annual federal budget for such science research programs as space physics and astronomy. We also point out that inefficient shuttle pricing to date has resulted in an efficiency loss of some $2.5 billion. These observations underscore the importance of using space transportation resources efficiently. Accordingly, our primary purpose in this paper is to describe an economically efficient pricing policy for the U.S. space shuttle system. A principal conclusion is that with some caveats, long-run marginal cost pricing of shuttle use-including amortized capital charges-is desirable not just on conceptual first-best-pricing grounds, but also as a practical measure. We reach this conclusion even after accounting for several factorsinternational competition, public goods, and budget deficits-that might seem at first glance to require departures from marginal-cost pricing. Our findings also are based on an analysis of space transportation costs, especially potential scale economies and scope economies both horizontally and vertically across stages of production. This analysis is necessarily limited by data availability, but we feel that it offers strong guidance for our conclusions. Our focus requires us to abbreviate or exclude treatment of several other topics that are clearly relevant to achieving economic efficiency in space transportation. For example, long-run efficiency involves building the correct number of shuttle orbiters, as well as properly pricing their use. We only touch briefly in this paper on the optimal scale of shuttle investment, even though shuttle pricing clearly has important implications for fleet size. For example, the decision to replace the shuttle Challenger destroyed in January 1986 was based in part on demand projections that reflected a history of pricing shuttle use well below marginal cost. However, a fuller treatment of this issue would take us much farther afield into questions of institutional incentives and related topics.1 In addition, we do not address pricing of space transportation risks, and the efficacy of insurance and other risk markets for this purpose.2 Ex-