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Accounting‐Induced Distortion in Public Enterprise Pricing
Author(s) -
Moncur James E. T.,
Pollock Richard L.
Publication year - 1996
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/96wr02281
Subject(s) - inflation (cosmology) , distortion (music) , consumption (sociology) , accounting method , cost accounting , economics , business , monetary economics , accounting , finance , engineering , amplifier , social science , physics , cmos , electronic engineering , sociology , theoretical physics
Municipal water utilities commonly aim to set prices at average cost. Because of various omissions and owing to inflation, unadjusted accounting data understate the economic costs of fixed assets and thus generate inefficiently low prices and high consumption rates for the output of these enterprises. We investigate the nature and extent of undercosting and underpricing for a group of large urban water utilities in the United States. Economic costs appear to be significantly greater than the corresponding accounting measures for the cases studied.