Efficient pricing too expensive?

A new paper by David Levinson and Andrew Odlyzko (whom I have raved about before) looks at the reasons why efficient pricing — either congestion pricing or other usage-based pricing — is not adopted in many cases where it seems obvious. In previous posts, I have pointed to roads, water and bandwidth as possibilities.

Levinson and Odlyzko point to the costs imposed on users of such pricing. These costs are mainly cognitive but when coupled with concerns for behavioural economics, may provide an explanation. They might be right although I suspect that the issue is one of getting used to something and so something that is “too expensive to meter” might become less so as habits form. Anyhow, their historical examples make very interesting reading.