Public Utility Pricing and Capacity Choice with Stochastic Demand

This article is a companion piece to David et al. (2011). In that article, we explored Serge Kolm’s contributions to theoretical public economics from an historical perspective, covering a rather general range of topics and specifications. Here, in contrast, we concentrate on the implications for pricing and capacity choice of a specific aspect of the economic environment often encountered by public sector managers and regulators: the uncertainty attached to the demand for the good(s) and service(s) produced by a public utility. Following an early article by Boiteux (see Boiteux 1951), Kolm (1970, 1971) has made important contributions to this issue.