The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Public Utility Pricing and Finance

  • Frank A Wolak
Reference work entry


The theory of public utility pricing provides clear recommendations when the regulator and utility have same information about the underlying economic environment – the structure of demand and the production process. In reality, the utility has private information about the underlying economic environment, and the incentives created by the regulatory process can cause it to exploit this information by producing in an inefficient manner. This insight complicates virtually all aspects of the theory of public utility pricing, and has led to theoretical characterizations of the public utility price-setting process as the solution to a mechanism design problem.


Asymmetrical information Averch–Johnson effect Cost functions Cost-of-service regulation Increasing returns to scale Inverse elasticity pricing rule Multi-part tariffs Multi-product firms Natural monopoly Optimal pricing Price cap regulation Principal and agent Privatization Public utility pricing and finance Ramsey pricing Regulatory contracts Two-part tariffs 

JEL Classifications

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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Frank A Wolak
    • 1
  1. 1.