A Simple Characterization of the Second-best Two-part and Block-rate Tariffs Theory and Applications
The general necessary optimality conditions for second-best discrete multipart tariffs are rather complex. In this paper, we derive a simplified characterization of these conditions for two-part tariffs and for block-rate tariffs for given thresholds of these tariffs. The simplified necessary optimality conditions are equivalent to the necessary conditions for a Ramsey-optimum for goods with continuously variable individually demanded quantities. We demonstrate that this characterization of second-best multipart tariffs can be helpful, when applying the usual regulatory mechanisms to these tariffs. In particular, we consider Vogelsang-Finsinger (1979) regulation as well as a particular form of price-cap regulation which is related to the Laspeyres index of prices. Copyright CIRIEC, 2003.
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