Ramsey Pricing & Transportation Finance
The local business community is rather fond of arguing that, because of our proximity to the federal government in Washington, this area will grow and grow. This might be a bit of an overstatement given the high costs of doing business here, the ever-deteriorating quality of life, the concern of the federal government about locating too many resources too close to area of possible terrorist attack, etc. But, in any event, this area will continue to grow.
We also hear the same people argue that we need more transportation facilities. Probably so -- although it would make good economic sense first to try to use what we have more efficiently. But we will probably continue to need more infrastructure.
How do we pay for it? Let's try Ramsey Pricing. Ramsey Pricing is "second-best" pricing, whereby classes of customers with inelastic demands pay a higher markup over marginal cost than those with more elastic demands. The basic goal of Ramsey Pricing is to recoup the fixed costs from those customers who have the fewest alternatives, while minimizing the distortion associated with prices in excess of marginal costs.
Fairfax County's best asset is probably its close proximity to Washington, D.C. Businesses with a desire to influence or sell to the federal government want to locate in or near the District of Columbia. Our second best asset is probably the fact that D.C.'s government charges higher taxes and is generally incompetent, while suburban Maryland also imposes higher taxes than Virginia (but, at least, is relatively competent).
Therefore, Fairfax County, indeed, Arlington, Alexandria and Falls Church, should impose new and substantial fees on commercial property, or at least, commercial property that is attractive to government contractors and lobbyists/trade associations. These groups want to be near Washington and will pay substantially higher rents/fees for the privilege. Those fees should be set just slightly below what is charged in Washington, D.C. and suburban Maryland. The proceeds should be used to fund local transportation.
Let's use Ramsey Pricing principles to fund some of our transportation needs. It makes good economic sense.
We also hear the same people argue that we need more transportation facilities. Probably so -- although it would make good economic sense first to try to use what we have more efficiently. But we will probably continue to need more infrastructure.
How do we pay for it? Let's try Ramsey Pricing. Ramsey Pricing is "second-best" pricing, whereby classes of customers with inelastic demands pay a higher markup over marginal cost than those with more elastic demands. The basic goal of Ramsey Pricing is to recoup the fixed costs from those customers who have the fewest alternatives, while minimizing the distortion associated with prices in excess of marginal costs.
Fairfax County's best asset is probably its close proximity to Washington, D.C. Businesses with a desire to influence or sell to the federal government want to locate in or near the District of Columbia. Our second best asset is probably the fact that D.C.'s government charges higher taxes and is generally incompetent, while suburban Maryland also imposes higher taxes than Virginia (but, at least, is relatively competent).
Therefore, Fairfax County, indeed, Arlington, Alexandria and Falls Church, should impose new and substantial fees on commercial property, or at least, commercial property that is attractive to government contractors and lobbyists/trade associations. These groups want to be near Washington and will pay substantially higher rents/fees for the privilege. Those fees should be set just slightly below what is charged in Washington, D.C. and suburban Maryland. The proceeds should be used to fund local transportation.
Let's use Ramsey Pricing principles to fund some of our transportation needs. It makes good economic sense.
posted by Toomanytaxes at 2:48 PM
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