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Ramsey pricing in practice: the case of the Norwegian ferries

By Finn Jørgensen, Hassa Pedersen and Gisle Solvoll

Abstract

The article develops a cost model for ferry operators, which enables us to estimate how long-run marginal costs for transporting different categories of vehicles are related to trip lengths. The model is estimated using cross-sectional data from 64 ferry services in Norway. The present fare system for the ferries is then compared with marginal costs and with Ramsey fares with the presumption that the ferries' subsidy needs are at today's level. Ramsey pricing implicates steeper relationships between fares and trip lengths than present fares, in particular for heavy vehicles. Consequently, fares based on general principles of economic welfare should, under present financial constraints for the ferry operators, lead to lower fares for short journeys and significantly higher fares for long journeys.

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