A theory of user-fee competition

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. We develop a two-region model where the decentralized provision of spillover goods can be financed by means of taxes or user fees. In order to enforce the fees regions have to invest in exclusion. We show that a decentralized solution tends to be inefficient. There will be over-investment in exclusion and an underprovision of the spillover goods compared to a centralized solution. In addition the regions have strategic incentives to set user charges. If the regional spillover goods are substitutes user fees tend to be inefficiently low, whereas they tend to be inefficiently high if the spillover goods are complements. Terms of use: Documents in EconStor mayJEL classification: D74, H41.

Endogenous free riding and the decentralized user-fee financing of spillover goods in a n-region economy

“…By the same token, scenarios III and VI can be ruled out because they imply no revenues from the user fee, which can always be avoided by lowering p j j to almost zero. Case IV resembles the model by Fuest and Kolmar (2007): without free riding, the effect of p j j on c j jD is only determined by MRS j j = p j j and therefore exclusively driven by the structure of the utility function. If the spillover good is normal, the income effect cannot dominate the price effect, and demand is decreasing in the relevant user fee.…”

“…Some of the conditions are straightforward extensions of the two-region model with exogenous exclusion of free riding developed by Fuest and Kolmar (2007). We will very briefly discuss them here and focus instead on the novel aspect of multiple regions and the endogenous enforcement of user fees.…”

“…If the marginal costs of public funds are zero, λ j = μ j , domestic user fees should therefore be equal to zero (Fuest and Kolmar 2007). We assume that the marginal costs of public funds are not equal to zero in the following.…”

“…One way to internalize these potential externalities is to create a system of interregional transfer payments. For a number of spillover goods, an alternative is to charge resident and non-resident users a price for the use of regional spillover goods (Fuest and Kolmar 2007). Two important aspects of user fees are the costs of running these systems and the possibilities to discriminate prices with respect to user groups.…”

“…This paper builds on earlier work by Fuest and Kolmar (2007) who have explored the strategic incentives to set user fees if two regions provide non-rival goods. A major finding of their paper is that user fees can be either inefficiently low or inefficiently high, depending on whether the spillover goods are substitutes or complements.…”