Note six at the end of last Monday’s reading discusses Professor Colton’s argument that it is more efficient, and a better social policy, for utility companies to pursue non-payers only to certain extent. Professor Colton argues that over pursuing creates inefficiencies in the utility company because it would probably spend more money pursuing the non-payer than it would collect from a non-payer. The social policy behind Professor Colton’s argument makes sense too at least from a slightly altruistic economic perspective – the company takes a hit on the rate it charges a few customers, but so long as they pay at least the variable cost the company has in providing that service to the non-under payer the company isn’t too much worse off. And the company still provides a good (probably a necessity in this age) to the customer.
I read this and thought of a counter argument I heard in another class. The argument goes something like this: It’s better to over-pursue non-payers because that aggressive mentality will prevent non-payment in the future because word will spread to potential non-payers that it is not worth the hassle of being pursued by creditors. They’ll learn it’s better to pay than not pay. I heard about this in the context of Berkshire Hathaway and how it is unflagging in its pursuit of claims it has and in punishing claims brought against it by dragging its opponents through the procedural and litigation gauntlet.
Granted Berkshire Hathaway and public utilities are not in the same industries and different things influence their respective policy decisions, but I thought Berkshire’s policy could be a counterargument to Professor Colton’s argument. If the public utility took the short-run hit of spending a great deal of time and money to over-pursue its non-payers, would word spread as in the Berkshire Hathaway example? Would the non-payers learn that it’s less of a hassle to pay than to be pursued by creditors? I think on a superficial level this counterargument holds water, but I also find Professor Colton’s further explanation persuasive. I also find his social policy more persuasive and altruistic than having non-payers go without. This policy holds water because it takes on a short-term inefficiency to hopefully not have to deal with issues of non-payment in the future. But, there are problems with this policy decision.
Professor Colton’s argument suggests that having a non-payer pay what he or she can would bring in marginally more revenue and so long as it covers the average variable cost of providing that service to the under-payer, then the public utility isn’t too much more worse off. Professor Colton suggests customers, paying the regular rate would cover part of the difference from the under-payers. There’s a fairness argument to be made about whether the customers paying the regular rate should be obliged to cover for the under-payers, but I still find the altruism of covering for the under-payers and still giving them a necessary service appealing on some level even if it is inefficient economically. But Professor Colton says it’s more efficient to have the customers pay the regular rate and collect marginally from the under-payers so the costs of providing the service do not increase across the board. This is a good rebuttal to the over-pursue counterargument because there is not social benefit in that process. No under-payer gets to have the necessary good. Further, the increased cost of the initial over-pursuit would, at most, bring rates back to where they were before the over-pursuit spike so the customers pay for the over-pursuit but do not benefit from costs lower than before the initial rise in price.
I read this and thought of a counter argument I heard in another class. The argument goes something like this: It’s better to over-pursue non-payers because that aggressive mentality will prevent non-payment in the future because word will spread to potential non-payers that it is not worth the hassle of being pursued by creditors. They’ll learn it’s better to pay than not pay. I heard about this in the context of Berkshire Hathaway and how it is unflagging in its pursuit of claims it has and in punishing claims brought against it by dragging its opponents through the procedural and litigation gauntlet.
Granted Berkshire Hathaway and public utilities are not in the same industries and different things influence their respective policy decisions, but I thought Berkshire’s policy could be a counterargument to Professor Colton’s argument. If the public utility took the short-run hit of spending a great deal of time and money to over-pursue its non-payers, would word spread as in the Berkshire Hathaway example? Would the non-payers learn that it’s less of a hassle to pay than to be pursued by creditors? I think on a superficial level this counterargument holds water, but I also find Professor Colton’s further explanation persuasive. I also find his social policy more persuasive and altruistic than having non-payers go without. This policy holds water because it takes on a short-term inefficiency to hopefully not have to deal with issues of non-payment in the future. But, there are problems with this policy decision.
Professor Colton’s argument suggests that having a non-payer pay what he or she can would bring in marginally more revenue and so long as it covers the average variable cost of providing that service to the under-payer, then the public utility isn’t too much more worse off. Professor Colton suggests customers, paying the regular rate would cover part of the difference from the under-payers. There’s a fairness argument to be made about whether the customers paying the regular rate should be obliged to cover for the under-payers, but I still find the altruism of covering for the under-payers and still giving them a necessary service appealing on some level even if it is inefficient economically. But Professor Colton says it’s more efficient to have the customers pay the regular rate and collect marginally from the under-payers so the costs of providing the service do not increase across the board. This is a good rebuttal to the over-pursue counterargument because there is not social benefit in that process. No under-payer gets to have the necessary good. Further, the increased cost of the initial over-pursuit would, at most, bring rates back to where they were before the over-pursuit spike so the customers pay for the over-pursuit but do not benefit from costs lower than before the initial rise in price.
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