Kiel Working Papers, Kiel Institute for World Economics
No 1741:
Determining Optimal Transit Charges: The Kiel Canal in Germany
Nadine Heitmann, Katrin Rehdanz and Ulrich Schmidt
Abstract: The Kiel Canal in Germany connects ports on the Baltic Sea
with the rest of the world and is the most-used artificial waterway in the
world. Despite this fact, it generates a balance sheet loss. Revenues,
which are mainly generated by the transit charge, do not cover its
operating expenses. This situation raises the question: What reforms could
be made to make the canal generate a balance sheet profit? In this paper,
we focus solely on the canal’s revenue. Because the canal is a monopoly
that allows, in principle, for perfect price discrimination, we contrast
the current charging system with an optimal charging system based on the
willingness-to-pay (WTP) approach. We devise a general approach to
calculate optimal transit charges and apply it in a case study that
includes four different ship types. We conclude that much higher revenues
could be generated, on the order of between $5 and $45 million more per
year and ship type if the transit charge were based not only on ship size
but also on a ship’s departure and destination ports
Keywords: optimal transit charge, Kiel Canal, shipping cost, Germany, price discrimination; (follow links to similar papers)
JEL-Codes: R48,; L92; (follow links to similar papers)
28 pages, November 2011
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