These need to be assessed against the same overall objectives for cost recovery that were identified in Guideline 5. 7.1.1 Efficiency gains Assess the case for charging at short run marginal cost, as opposed to long run or full cost. Charging at short run marginal cost can promote efficient decisions about the consumption of the output, and about the level of its production over the short term. One efficient option that is available for club goods is a two-part tariff. If a shortfall from charging at short-run marginal cost cannot be made up in this way, however, it has to be met from general taxation.
Taxation has economic costs and also affects budget constraints.
Assess the trade-off between them. 7.2 Charging at More than Full Cost Assess whether there is a case for charging at more than full cost. Charging more than is necessary to recover the full cost of an output is equivalent to imposing a selective tax on the output. The economic case for such a step would have to establish that the costs involved were less than the economic and administrative costs of existing, broad based taxes. The following section deals with one set of circumstances in which charges might initially be set at more than full cost.