Example of an Efficiency-Restoring Fee: A Congested Swimming Pool
A publicly owned swimming pool serves as an example of restoring efficiency through exclusion. As more people use the pool, it becomes congested, and each additional user imposes a marginal cost on others. By setting an entrance charge precisely equal to this marginal social cost of congestion, an efficient outcome can be achieved in principle. This fee would deter individuals whose valuation of swimming is lower than the congestion cost they would impose. It is important to note, however, that such an efficiency-focused charge may not be sufficient to cover the pool's total construction and maintenance costs.
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Example of an Efficiency-Restoring Fee: A Congested Swimming Pool
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Learn After
A municipal swimming pool becomes extremely crowded on summer afternoons. An economist determines that during these peak hours, each additional person who enters the pool imposes a 'congestion cost' (e.g., less space, longer waits for amenities) on all other users, valued at approximately $3. The town's goal is to ensure that the number of people in the pool is socially optimal, meaning that anyone using the pool values the experience more than the inconvenience they cause to others. Based on this principle, what entrance fee should the town charge during peak hours?
A municipal swimming pool becomes congested during peak hours. To achieve an economically efficient outcome, an entrance fee is set exactly equal to the marginal social cost each additional swimmer imposes on others. A primary outcome of setting the fee this way is that the revenue generated will be sufficient to cover the pool's total construction and maintenance costs.
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