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The economic theory underlying pricing and investment problems of public utilities is presented from the point of view of welfare maximization as well as from an applied, institutional design perspective. The book begins with a reexamination of the welfare foundations of public-utility economics, with special emphasis on consumers' surplus as a measure of social welfare. The authors then present a comprehensive analysis of peak-load pricing, including traditional theory, multi-period, multi-plant, interdependent demand, stochastic demand, and dynamic analysis. Recent developments in reliability and time-varying demands are examined. Regulation and public ownership are reviewed, and the theory of regulation is examined in the light of recent developments in agency theory, expense preference, and the traditional Averch-Johnson analysis. The theoretical framework is applied to the electricity supply industry and the problem of energy conservation. Important features of the book include a full exposition of the interactions of technology and pricing policy and a linking of dynamic and static theories of pricing. Numerous exercises, together with solutions and hints to many of the problems, are included. 68 references, 24 figures, 11 tables.
Stevenson et al. (Sun,) studied this question.