12 May 2010

Bleg: Increasing block rates

I'm blanking here...

Does anyone have an example of increasing block rates being used outside of regulated (water, gas, electric) utilities?

It seems that IBRs do not exist in any markets. Curious Important!


  1. LK emails: "Are there any industries other than those you mention in which:

    * there are high FC/high capital ratios/infrastructure investments
    * the product(s) is/are consumed in small increments and in different intensities at different times
    * and therefore managing capacity utilization at peak at small scale is an issue?

    The industries that might be prone to inclining block pricing that come to my mind are industries like airlines, hotels, car rental, all of which violate at least one of the above.

    The other obvious one is cell phone time, but the dynamics of the market have led to a different equilibrium there (as I desperately wish we would allow them to do in electricity!)."

  2. WM emails: "Its still regulated, but how about hourly pay rules (e.g. base pay 0-40 hours, 1.5x over 40, 2x certain holidays and over higher thresholds in some states and/or union contracts). Sort of like increasing blocks."

  3. @LK -- I think that your peak capacity point is not important for water. Cell phones and your other examples *do* have high FC/VC ratios, but they are competitive...

    @WM -- Funny how salary people don't have this built in, but "protected" workers do. (I don't think it's a bad idea, given employer power...)

  4. Let's face it, IBR is a silly idea.

    Economists say we should charge increasing marginal rates for water - true.

    Some dimwit came up with the idea of IBR. No one else had a better idea.

    Now people think IBR is the only way to achieve an increasing marginal rates...

    No one prices this way outside water because it has major flaws! And urban water people lack the creativity to think of alternatives.

  5. DF emails: "I know that this is NOT what you were looking for but IBRs are a key factor in progressive Income taxes and some property taxes. Real markets, however, are more likely to include Decreasing Block Rates - Cheaper by the Dozen."

  6. @TTTE -- good point. We've talked about this before, and I agree that IBR may be more trouble than they are worth...


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