Advances in Regulatory Economics series
Edited by Michael A. Crew and Paul R. Kleindorfer
Chapter 15: Using Operating Data to Measure Labor Input Variability and Density Economies in United States Postal Service Mail Processing Operations
A. Thomas Bozzo* 1 INTRODUCTION Estimates of economic costs for postal products have a variety of well-known applications for postal pricing and regulation. Testing rates for cross-subsidy requires estimates of product-level incremental costs. Evaluating the allocative eﬃciency of rates and applying pricing models such as the eﬃcient component pricing rule to worksharing discounts require estimates of marginal costs. In the United States, the Postal Accountability and Enhancement Act (PAEA) enacted language directing the use of causally determined costs for a cost-coverage requirement: that each class of mail or type of mail service bear the direct and indirect postal costs attributable to each class or type of mail service through reliably identiﬁed causal relationships plus that portion of all other costs of the Postal Service reasonably assignable to such class or type (39 USC 3622(c)(2)) and speciﬁed ‘avoided’ costs for evaluating US Postal Service (USPS) worksharing discounts: ‘The Postal Regulatory Commission shall ensure that such discounts do not exceed the cost that the Postal Service avoids as a result of workshare activity [subject to exceptions]’ (39 USC 3622(e)(2)). In US practice, cost coverage is measured with incremental cost1 and worksharing discounts are evaluated in terms of marginal cost avoidance. European Union postal directives express similar objectives for eﬃcient and subsidy-free prices, while directing the use of fully distributed cost (FDC) accounting for product costs (Hearn 2008). However, FDCs are not theoretically acceptable substitutes for marginal and incremental costs. In the presence...
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