In the for-profit sector, there are three basic ways to price a product: The cost plus profit margin method; benchmarking versus competition; and pricing based on customer value. But how should we think about pricing in the public sector? Let's take an unusual example: the price of US citizenship.
Legal immigrants to the US who are resident for five years (or three years for those who marry a US citizen) can apply for US citizenship. Currently, citizenship application and processing fees in the US are $675 per person, up from $60 two decades ago. These fees, which exclude the costs of individual legal assistance or private citizenship classes, were increased by 69% in July 2007. The basic fee is $595; a biometrics fee adds a further $80. Comparable fees in Australia and Canada are around $200 (and the Canadian residency requirement is just three years).
Let's assume that the $675 reflects current costs, given publicly funded citizenship classes, law enforcement background checks, office processing, candidate interviews, and swearing-in ceremonies. What then is the value of becoming a US citizen rather than remaining as a legal resident? New citizens get to vote, apply for federal jobs, and bring their families to the US. They also join the most exclusive 300 million member club in the history of mankind. How much is that worth? Not $675, at least in the eyes of 90 percent of 8 million legal residents eligible to become US citizens each year who forgo the option. The number of US citizenship applications from legal residents dropped by 50 percent in the two years after the price increase. As a result, the Federal agency handling citizenship applications still runs a budget deficit, suggesting to some bureaucrats that the price needs to be raised again!
Should the rest of us care? Should we, as a nation of immigrants, subsidize the cost of processing applications in an economic recession to motivate more qualified but resource-strapped residents to apply? Would our democracy benefit if more legal residents joined the ranks of voters, became fully engaged in community life, and put down stronger roots? How can we quantify these benefits to justify a price below cost? Or should we leave the price as is but market the benefits of citizenship more effectively?
Or should we raise the price of US citizenship again? Imagine that every naturalized citizen was asked what value he or she would place on having become a US citizen. In most cases, the estimates of net present value would surely exceed $675. Why not treat admission to US citizenship as Harvard treats its applicants: charge $30,000 tuition but refund, on average, 50 percent of tuition revenues in scholarships to those who need help? Perhaps allow an income tax deduction of value-based citizenship fees over five years?
What do you think? How would you advise the US government to set a price for citizenship?