RENT DISSIPATION THROUGH ELECTRICITY PRICES OF PUBLICLY OWNED UTILITIES

A public-choice model is presented in order to explain the fact that p ublicly owned electricity utilities rarely price at marginal cost in p ractice, It is shown that if (i) government revenues are raised throug h proportional taxes, (ii) median income is less than mean income, and (iii) the share of a consumer's spending on electricity decreases wit h income, then the price resulting from a majority rule and universal voting is below marginal cost, The determination of a fixed subscripti on fee is also considered, Empirical evidence of our results is obtain ed from pricing and consumption data for Hydro-Quebec.