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Le Tarif Vert Retrouve: The Marginal Cost Concept and the Pricing of Electricity in Britain and France, 1945-1970

This article compares the development of marginal cost pricing in the French and UK nationalised electricity industries between 1945 and 1970. Asking why French 'marginaliste' economists like Allais and Boiteux enjoyed more influence than their UK counterparts like Meade, political decisions concerning the organisation of the electricity industries, the differing influence of industrial and consumer interests, and the early postwar choices of hydro and thermal investment in France, are advanced as explanations. In the UK, the Treasury pushed nationalised industries towards marginal cost pricing, requiring them to earn rates of return on existing investment and to subject the proposed investment to test discount rates during the 1960s. The paper closes by arguing that these different routes to marginal cost pricing in the French and UK nationalised electricity industries had significant effects on later government and public attitudes towards the privatisation and liberalisation of the national electricity industry and market.

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Energy Specializations: Electricity – Markets and Prices ; Electricity – Policy and Regulation

JEL Codes:
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Electricity tarrifs, policy, UK, France, Energy policy

DOI: 10.5547/ISSN0195-6574-EJ-Vol23-No1-5

Published in Volume23, Number 1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.