Cost Recovery Pricing and Urban Management

Abstract

Fundamental challenges faced by governments tasked with managing growth and change in large urbanized regions arise from under-pricing of urban infrastructure and environmental assets. This paper argues that a generalized failure by governments, and urban planning officials who advise them, to understand the economic basis of cities deprives them of insight into the most effective tools needed for management. The paper is in three parts. First, social costs arising from consumption and production activities in cities and the implications of under-priced urban services are considered. Second, recognizing that pricing solutions to urban problems may have socially regressive outcomes, ways and means for these to be addressed are discussed. Third, approaches to overcoming implementation constraints are addressed. Illustrative examples, reflecting the author’s experience, relate to Australian cities but the arguments are universal.

Keywords:

• urban management
• cost recovery pricing
• externality pricing