Abstract
The subsidization of a natural monopoly is justified on welfare-economic grounds if the resulting total economic surplus exceeds total costs. Using rather standard assumptions, a simple check, managing with a minimum of information and, in particular, without virtually any knowledge of the demand curve, is developed which is capable of confirming an existing economic case for subsidization.
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Schimmelpfennig, J. The one-third rule: Learning about the net economic benefit of a subsidy from a single observation. Public Choice 95, 331–334 (1998). https://doi.org/10.1023/A:1005019205780
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DOI: https://doi.org/10.1023/A:1005019205780