Pricing Municipal Services: The Economics of User Fees

User fees for municipal services may generate revenue for municipalities and their utility commissions, but they are equally important as prices for those services. Pricing services at marginal cost can lead to efficient production and consumption of the service, and efficient allocation of the service when capacity limits are reached; and it can help to guide investment on an efficient basis. Marginal costs should never be lower than operating costs and may be much higher in certain situations. It is important to include opportunity costs and environmental costs in the calculation of marginal costs. These principles are illustrated with respect to waste management and water