Recent policy proposals to raise the price of U.S. Postal Service (USPS) package delivery services based on an arcane cost accounting mechanism known as “fully distributed cost” (FDC) have the prospect of profoundly affecting both the efficiency and financial viability of the USPS. FDC pricing has received intense scrutiny and condemnation over the years by economists. Today the Georgetown Center for Business and Public Policy is releasing two papers that speak to the efficacy of FDC if imposed on the USPS.
First, a policy paper “Protecting the Package Delivery Market and the Economy from Distortions Resulting from Fully Distributed Cost Pricing,” by John Panzar of Northwestern University provides a detailed summary, analysis, and critique of FDC methods as revealed by decades of economic research.
Second, Professors Jeffrey Macher and John Mayo, both from Georgetown University, have written an Economic Policy Vignette that provides a short and easily accessible example of the pitfalls of imposing FDC pricing in the pricing of package delivery services.