Ramsey Pricing: A Method for Setting Fees in Social Service Organizations |
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| Authors: | Douglas J. Mc Cready |
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| Affiliation: | Douglas J. McCready, Ph.D., is professor of economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada. This paper was written with the assistance of Miss Marilyn E. Wilkinson and a Wilfrid Laurier University Undergraduate Research Assistanceship Grant. I thank David Gillen for discussing Ramsey pricing with me and an anonymous referee for helpful suggestions. Any remaining errors are mine. A case distributed by Intercollegiate Case Clearing House, Soldiers Field, Boston, Massachusetts 02163 on ARC Industries deals with some of the problems encountered in this situation, particularly those related to marketing. It suggested this investigation. |
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| Abstract: | Abstract . In non-profit social services, there is a tendency to avoid setting prices because of the distributional concerns and incompetence on the part of some consumers. Arguments for prices and cash transfers versus in-kind subsidies are reviewed. The appropriateness is examined of “Ramsey pricing” in achieving efficient resource allocation in a zero-profit firm when marginal cost pricing would lead to a profit. A survey of social service agencies in Ontario, Canada, found none was using the principles of “Ramsey pricing” and most were using no fees or prices at all. Some agencies had set prices but then waived them while others set fees equivalent to services provided by nonsocial service agencies. Most view fees as supplemental additions to the budget and consequently do not consider resource allocation. “Ramsey pricing,” it is believed, could be beneficially tried by social service agencies. |
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