Progress in the Competitive Agenda in the Postal and Delivery Sector
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Progress in the Competitive Agenda in the Postal and Delivery Sector

Edited by Michael A. Crew and Paul R. Kleindorfer

Regulation continues to be an important issue in the postal and delivery sector of the global economy. This latest volume of the series covers progress made in the competitive agenda in the industry. It is global in scope and addresses topics of great importance to scholars and practitioners of postal regulation and public sector economics.
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Chapter 15: Using Operating Data to Measure Labor Input Variability and Density Economies in United States Postal Service Mail Processing Operations

A. Thomas Bozzo


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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