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Optimizing Economic Equity through the Use of Pricing Premiums and Discounts

John L. Crompton

Abstract


 

Amelioration of economic inequality is a central tenet of the social justice movement. This paper demonstrates the potential role of park and recreation pricing policies in exacerbating or ameliorating social injustice. Tension in public sector pricing invariably revolves around reconciling pricing’s two guiding concepts of fairness: The Benefit Principle, which states that each taxpayer’s or service user’s contribution should reflect the benefits he or she receives from a service; and The Ability to Pay Principle which requires that no residents should be excluded from participation because they lack the funds to do so. Operationalizing the Ability to Pay Principle requires offering discounts to the economically disadvantaged, unemployed residents, children, and large households. Principles, rationales, administrative mechanisms, and challenges associated with implementation for each of these concepts are discussed. 

Social injustice is exacerbated when regressive property and sales taxes are used to subsidize recreation participants who are not economically disadvantaged. This occurs in contexts where the economically disadvantaged are relatively infrequent users of recreation programs. In those situations, both the Ability to Pay and the Benefit Principles are abrogated. 

Similarly, when discounts are provided to groups that are not economically disadvantaged, the subsidies usually are paid for by regressive property and sales taxes. Seniors are the most prominent cohort to whom inappropriate discounts are provided. All financial indicators show that, on average, they have greater assets and more income than non-seniors. Nevertheless, in many communities, discounts are available; indeed, the trend has been to incrementally lower the age at which “seniors” become eligible for discounts. Situations in which multi-use passes exacerbate income inequality are also discussed. Strategies for removing these sources of social injustice are suggested.

Both the Ability to Pay and the Benefit Principle direct that social justice is served when agencies capture consumers’ surplus through the use of premiums. This may be done when individual users pay for extra benefits in the form of reservations, peak time use, receiving a higher quality offering than the regular service provides, or by bids/auctions designed to offer an improved service. It is also justified when nonresidents use public facilities. 

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Keywords


Pricing; discounts; premiums; Ability to Pay Principle; Benefit Principle

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DOI: https://doi.org/10.18666/JPRA-2020-10013

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