ABSTRACT
In 1 968, Wilbur Thompson, in the City as a Distorted Price System, argued that urban sprawl was a function of faulty pricing system that sent distorted signals to land developers, home buyers, and other economic agents (Thompson, 1 968: 28). A key cri t ic ism of existing pricing systems for urban services i s that such services are often priced on an average cost basis that does not reflect the true cost of providing the service to different households or in different locations. For instance, many municipalities in North America use a flat rate charge for water supply that is charged on a per household basis independent of consumption and location, both of which can alter the cost of supplying the service. Likewise school bussing is paid for by households through property taxes that do not reflect the increase stress placed on the service del ivery system by people locating in far-flung rural areas. Such pricing mechanisms, it i s argued, fail to send adequate signals to the consumer about the importance or value of conserving resources or choosing locations that are cheaper to service. Marginal cost pricing is often proposed as an antidote for the distortions introduced by current pricing practices. As "correct marginal -cost pricing of these urban services would result in higher rates being charged in these areas, rather than the same rates, as is now the usual practice" (Bird and Slack, 1 983 : 9 1 ) .
