The public interest is best served when the rates are so apportioned as to encourage the largest practicable exchange of products.
-- Interstate Commerce Commission
DISCUSSIONS OF depletable resources and waste management are often confined to problems of market inefficiencies and how to remedy them. The first inefficiency concerns discriminatory practices in pricing. Thus, if freight rates favor the shipment of virgin materials over secondary ones, the theory is that the rate structure should be changed to eliminate the discrimination; if the tax system favors industries using virgin materials over other industries (including those using secondary materials), then the special tax preferences toward the extractive industries should be removed; somehow the market system should be adjusted to internalize the cost of disposal. Correct the market failures, the idea goes, and the market system becomes neutral with respect to material flows; neither virgin nor scrap material is favored. Material flows are then compatible with economic efficiency. As mentioned in the Introduction [and discussed more fully in chapters 7, 8, and 9 (Part Three)], there are shortcomings in this approach. Nonetheless, the approach is useful in understanding how markets work and how market allocations may be distorted. In the main, this is the approach in the discussions of Discriminatory Pricing and Disposal.
An important condition for economic efficiency is for price to equal marginal cost. But as we shall see, there are times when it is not possible to meet this condition or when it may not be desirable to meet it. Here, we examine cases in which there is debate about the desirability of price-marginal cost equality. For the most part, the chapter is devoted to the case of railroad freight rates. These prices have received con-