Tariff Rate Determination Under Common Cost: The Cross-Subsidization Criterion in Practice

Abstract

This paper presents an analytical and graphical methodology, developed as part of a detailed feasibility study of railway transport of two products (crude oil and liquid natural gas) from two Arctic locations (Prudhoe Bay, Alaska, and the Mackenzie Delta, Northwest Territories) to a single southern destination, for determining the range of product and origin tariff levels under conditions of joint and common costs. Sample tariff ranges, computed to preclude cross-subsidization and to permit a realistic comparison of the railway with other transport modes are presented. The applicability of the methodology to more general circumstances is discussed.