FINANCING A NATIONALIZED MONOPOLY - COASES VERSUS HOTELLING-LERNER SOLUTION

In 1946, Coase rejected Hotelling-Lerner's solution for financing a na tionalized monopoly on the grounds that any tar structure could distor t relative prices. In situations where two-part tariffs are infeasible , Coase suggested average cost pricing as a noninferior solution to th e above policy. Tills article shows that, in a general equilibrium mod el, it is possible to choose a distortionary Hotelling-Lerner's tax po licy that is superior to average cost pricing.