Keywords

JEL Classifications

French engineer and economic theorist, born at Fossano, Piedmont, Italy on 18 May 1804, when this region was part of the French empire; died 5 September 1866 in Paris. After his parents returned to Paris in 1814, Dupuit continued his education in the secondary schools at Versailles, at Louis-le-Grand and at Saint-Louis, where he finished brilliantly by winning a physics prize in a large group of competitors. Accepted to the Ecole des Ponts et Chaussées in 1824, Dupuit soon distinguished himself as an engineer and, in 1827, was put in charge of an engineering district in the department of Sarthe, where he concentrated on roadway and navigation work. Dupuit’s numerous and trenchant engineering studies on such topics as friction and highway deterioration, floods and hydraulics, and municipal water systems made him one of the most creative civil engineers of his day. Decorated for such contributions by the Legion of Honour in 1843, Dupuit ultimately became director-chief engineer in Paris in 1850 and Inspector-General of the Corps of Civil Engineers in 1855.

No less profound were Dupuit’s contributions to general economic analysis and to the economic evaluation of public works (cost-benefit analysis). In fact, Dupuit was the most illustrious contributor in the long French tradition of study, teaching and writing on economic topics at the Ecole des Ponts et Chaussées, whose professors and students included Isnard, Henri Navier, Charles Minard, Emile Cheysson and Charles Ellet.

Led by a desire to evaluate the economic or net benefits of public provision, Dupuit directed his considerable analytical gifts to the utility foundation of demand and to its relevance to the welfare benefits of public works. In three substantial papers appearing in the Annales des Ponts et Chaussées (1844, 1849) and the Journal des économistes (1853), Dupuit became the first non-adventitious expositor of the theory of marginal utility, of (a variant of) marginal cost pricing, of simple and discriminating monopoly theory, and of pricing principles of the firm where location is a factor in expressing demand.

The font of Dupuit’s contribution is the construction of a marginal utility curve and the identification of it with the demand curve or courbe de consommation (see Fig. 1).

figure 430figure 430

Dupuit, Arsene-Jules-Emile Juvenal (1804–1866), Fig. 1

Arguing in the manner of Carl Menger, who later elaborated on the point, Dupuit showed that the marginal utility that an individual obtained from a homogeneous stock of goods is determined by the use to which the last units of the stock are put. In doing so, he clearly pointed out that the marginal utility of a stock or some particular good diminishes with increases in quantity and that each consumer attaches a different marginal utility to the same good according to the quantity consumed. The importance of Dupuit’s invention rests in the fact that the psychological concept of diminishing marginal utility, and its ramifications, were carried over to the law of demand. With some, but not all, of the reservations and qualifications of Alfred Marshall, Dupuit identified the marginal utility curve with the demand curve, adding up the utility curves of individuals to obtain the market demand curve. Dupuit (1844, p. 106) described his construction (see Fig. 1), which applied to all goods, public and private, as follows:

If … along a line Op the lengths Op, Op', Op" … represent various prices for an article, and that … pn, p′n′, p"n" … represent the number of articles consumed corresponding to these prices, then it is possible to construct a curve Nn′n"P which we shall call the curve of consumption. ON represents the quantity consumed when the price is zero, and OP the price at which consumption falls to zero.

The identification of marginal utility and demand, of course, sets up the demand curve as a welfare tool and Dupuit made specific calculations. A measure of the welfare produced by the good (utilité absolue) at quantity Or is the definite integral of the demand curve between O and r. Given that Op is the (average) cost of producing quantity Or, consumers earn a surplus (utilité relative) equal to absolute utility (OrnP) less costs of production (Ornp). (Relative utility (pnP) is none other than Marshall’s consumers’ surplus without all the reservations that Marshall attached to the concept.) Importantly, Dupuit identified area rNn as lost utility (utilité perdue). Under competitive conditions this loss was inevitable due to the opportunity cost of resources. Under a monopoly structure, for example, if, in Fig. 1, Op were a monopoly price with zero production costs assumed, utilité perdue would be a loss to society – the ‘deadweight’ loss associated with excise taxes, tariffs or monopoly. Further, Dupuit advanced the theorem that the loss in utility was proportional to the square of the tax of price above marginal cost. This theorem, with attendant analysis, formed the base for large areas of neoclassical welfare economics, including the taxation studies of F.Y. Edgeworth and the marginal cost pricing argument of Harold Hotelling.

From this theoretical base, Dupuit investigated an impressive number of pricing systems and market models (1849). While Dupuit was an ardent and stubborn defender of laissez faire in most markets (1861), he was equally concerned that public works, provided or regulated by government as a last resort, should produce the maximum amount of utility possible. Thus tools such as marginal cost pricing find their theoretical foundations in the writings of Dupuit. Although Dupuit did not provide an explicit formulation of the principle, one of his bridge pricing examples and other statements strongly suggest the possibilities of such a technique to maximize welfare, but as a long-run proposition.

Dupuit analysed, independently of Cournot, who was apparently unknown to him, the profit-maximizing behaviour of the simple monopolist. He saw monopoly at the apex of a range of problems regarding the production of total welfare, being unconcerned about the ‘distribution’ of welfare between producers and consumers. His point was that the amount of ‘absolute utility’ (or what could be called net benefit) was lessened by monopoly profit maximization. This led him to defend the private practice of price discrimination and to produce an economic theory of discrimination. Price discrimination could exist, in Dupuit’s view, with differences in ‘buyer estimates’, with the ability to segment markets either naturally or artificially, and with some degree of monopoly power. The motive was profit maximization, and although Dupuit discussed the effects of discrimination on price and revenue, he was primarily interested in the fact, as was Joan Robinson later, that discrimination could affect the size of the welfare benefit. This view was expanded to include the impact of price discrimination of welfare when buyers were spatially distributed (1849, 1854).

In the matter of policy, Dupuit recommended that tools be carefully fit to specific problems. If industries were to be collectivized or regulated by government, Dupuit proposed the maximization of net benefit under the constraint of covering total costs of production. The recovery of total cost might be achieved through regulated or constrained price discrimination or through a cost-based single price technique. However, Dupuit can hardly be credited with espousing an enlarged role for government or government intervention. A firm adherent of Smith’s dictums concerning minimal government, Dupuit believed that free and open competition, along with vigorous antitrust or anticartel enforcement, would ensure optimal provisions in most cases, including transportation. Indeed, in the process of analysing the welfare principles of public works pricing, Dupuit discovered (in an uncommonly complete manner) some of the critical welfare-maximizing properties of a generalized competitive system.

See Also

Selected Works

  • 1844. On the measurement of the utility of public works. Trans. R.H. Barback from the Annales des Ponts et Chaussées, in International Economic Papers, No. 2, London: Macmillan, 1952.

  • 1849. On tolls and transport charges. Trans. E. Henderson from the Annales des Ponts et Chaussées, in International Economic Papers, No. 11, London: Macmillan, 1962.

  • 1853. On utility and its measure – on public utility. Journal des économistes 36, 1–27.

  • 1854. Péages. In Dictionnaire de l’Economie Politique, vol. 2. Paris: Guillaumin.

  • 1861. La Liberté Commerciale. Paris: Guillaumin.

  • 1934. De l’Utilité et sa Mésure: écrits choisis et republiés, ed. M. de Bernardi.

  • Turin: La Riforma Sociale.