THE 1 3RD RULE - LEARNING ABOUT THE NET ECONOMIC BENEFIT OF A SUBSIDYFROM A SINGLE OBSERVATION/

The subsidization of a natural monopoly is justified on welfare-econom ic grounds if the resulting total economic surplus exceeds total costs . Using rather standard assumptions, a simple check, managing with a m inimum of information and, in particular, without virtually any knowle dge of the demand curve, is developed which is capable of confirming a n existing economic case for subsidization.