Policies for Pricing Commercially-Useful Space Systems Resulting from Government Programs

by John P. Stein, Charles Wolf, Jr.

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Policies for pricing commercially-useful systems resulting from government programs include four principal options: (1) marginal cost pricing (similar to what NASA, in pricing launch-vehicle services, has called "identifiable additional cost"); (2) average cost (or "full-cost") pricing; (3) profit-maximizing (or "monopoly") pricing; and (4) multi-part pricing. For efficient resource allocation in the short run, options (1) and (4) are optimal, whereas (2) and (3) are not. (Here "optimal" means, for example, that the amount of space shuttle services marketed will be such that the cost of producing the last unit exactly equals its market value.) This conclusion requires an assumption that externalities and implementation costs are not so different for the several alternatives as to alter the result. Choosing among alternative policies on the basis of long-run efficiency is more complicated and less conclusive, entailing such elusive considerations as public and congressional reactions to operating deficits and shuttle revenues, stimulating technological advance, and so on. Finally, the alternatives can be evaluated in terms of distributional criteria: how they affect costs and benefits paid or received by taxpayers, industry, and potential domestic and foreign users of space shuttle services.

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