RAMSEY PRICING OF ELECTRICITY UNDER UNKNOWN BYPASS COSTS

This paper derives Ramsey prices for the realistic situation in which bypass costs are unknown to both a regulator and an electric utility, in particular, to any useful level of precision. It is shown that the traditional inverse elasticity rule will still yield Ramsey prices tha t are incentive compatible. ate Ramsey prices require relatively littl e information to implement, and we show the relevant elasticities to u se. Modifications of these Ramsey prices that account for political re alities are also provided.