EFFICIENT USER CHARGES IN A RENT-SEEKING MODEL

This paper examines efficient user charges on governmentally provided facilities in the presence of rent seeking. We find that the efficient user charge depends upon the relative slopes of the demand curve for the use of the facility and the corresponding marginal cost curve, as well as the level of rent seeking over the revenue raised. Except for a special case, the efficient user charge is found to differ from the charge indicated by the intersection of demand and marginal cost curves. Examples show that actual user charges on government facilities are often set at inefficient levels. Copyright © 1991, Wiley Blackwell. All rights reserved