Consider Fred who lives in one suburb but gets a job in another

Update:24 Apr 2018

Consider Fred who lives in one suburb but gets a job in […]

Consider Fred who lives in one suburb but gets a job in another 30 miles away and has a long commute. He discovers that Lois, a colleague, lives near him and is amenable to car-pooling. Cars have variable costs, like gas, tires and repairs, plus fixed ones including insurance and the purchase payments or lease. What is fair? They could each drive their own cars alternate weeks. Or one could drive all the time with the other paying cash to defray some expense. But how much?

A British adage says: “Where there’s muck, there’s brass,” meaning that sewer connection fees are always a messy business.

The rider could pay the gas. But what if commuting is only a fourth of the owner’s weekly miles? Should the rider pay for every fill? Or what if the rider is an economist and says: “You are driving already anyway. It costs very little to have another 150 pounds in your car for those miles. So if I give you two bucks a day, you will be better off than if you got nothing.” The driver could retort: “Look, you are already spending at least $50 a week on your own car, so if you give me $40 a week you will be better off.” Each is correct, but who is “right.”

The problem arises when a service entails large investments in long-lasting infrastructure, including sewer mains and treatment plants. Amortizing such fixed costs is a large share of the total cost of the service. If the necessary investment was one-time for a fixed set of business and residences with no change in use, it would be easier. But when new facilities or developments are added to an existing system over time, you face the question of how to charge the new customers a fair share of the existing fixed costs or how to distribute the cost of entirely new facilities needed to accommodate new development over the customer base.

That all sounds pretty vague, so let’s start with an analogy.