Charging for Public Services

Abstract

Prices are the information mechanism of the market, which enable producers and consumers to make decisions on the comparative value of goods and services. In a perfect market, marginal costs and marginal values will equate to prices throughout the economy, and there will be allocative efficiency with the optimum pattern of production and consumption. Critics of the government as producer argue that there is too little use of the price mechanism in the public service, and that, where possible, the users of services should pay (Seldon, 1977). Price is seen as the most appropriate mechanism for enabling choices to be made and preferences to be disclosed, since it allows the direct comparison of one alternative with another through the use of money as a common measure, and makes opportunity costs clear. Pricing may be seen as difficult in relation to public goods which are collectively consumed, but few goods that are provided by the public service are unequivocally of this sort.