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Equity, Efficiency and Financial Viability: Public‐Utility Pricing with Special Reference to Water Supply

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  • Yew‐Kwang Ng

Abstract

The pricing and investment policies of a public enterprise should be designed to achieve efficiency since equity is better pursued by general policy regarding income distribution. Short‐run marginal‐cost pricing does not generally lead to long‐term deficit, but may involve price and surplus/deficit cycles for the case with lumpy investments and growing demand, where the price increases with demand but is reduced with capacity expansion. Taking account of the extra costs of government revenue collection and the likely average price/cost ratio in the economy, the third‐best pricing policy is likely to result in long‐term surplus, making the objectives of equity, efficiency and financial viability much more consistent with each other than is generally believed. This is particularly true for water with historically increasing costs of additional sources of supply.

Suggested Citation

  • Yew‐Kwang Ng, 1987. "Equity, Efficiency and Financial Viability: Public‐Utility Pricing with Special Reference to Water Supply," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 20(3), pages 21-35, September.
    • Handle: RePEc:bla:ausecr:v:20:y:1987:i:3:p:21-35
    DOI: 10.1111/j.1467-8462.1987.tb00669.x
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    Cited by:

    1. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    2. John Freebairn, 2009. "Should Households and Businesses Receive Compensation for the Costs of Greenhouse Gas Emissions?," Department of Economics - Working Papers Series 1071, The University of Melbourne.
    3. Edwards, Geoff W., 2012. "The Desalination Plant, The North-South Pipeline And The Welfare Of Melburnians," 2012 Conference (56th), February 7-10, 2012, Fremantle, Australia 124292, Australian Agricultural and Resource Economics Society.
    4. Yew‐Kwang Ng, 1991. "Should a ‘Natural Monopolist‘ Be Subject to Competition?: With Special Reference to Cellular Mobile Telephone Services in Australia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 24(2), pages 32-44, April.
    5. Michael Pickford, 1996. "Pricing Access to Essential Facilities," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 3(2), pages 165-176.
    6. Fogarty, James & Polyakov, Maksym & Iftekhar, MD Sayed, 2017. "Equitable and Efficient systems of water utility charges in the face of a changing water supply mix," Working Papers 264780, University of Western Australia, School of Agricultural and Resource Economics.
    7. Simshauser, Paul, 2016. "Distribution network prices and solar PV: Resolving rate instability and wealth transfers through demand tariffs," Energy Economics, Elsevier, vol. 54(C), pages 108-122.
    8. Antony, George, 1995. "Stakeholders and Their Preferences in Setting Water Charges," 1995 Conference (39th), February 14-16, 1995, Perth, Australia 148807, Australian Agricultural and Resource Economics Society.
    9. Richard G. Lipsey, 2017. "Generality Versus Context Specificity: First, Second and Third Best in Theory and Policy," Pacific Economic Review, Wiley Blackwell, vol. 22(2), pages 167-177, May.
    10. Richard G. Lipsey, 2012. "A critique of Ng's third-best theory," Discussion Papers dp12-02, Department of Economics, Simon Fraser University.
    11. Stephen P. King, 1995. "Guaranteeing Access to Essential Infrastructure," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 2(4), pages 423-431.
    12. Chris Hunt & Dunstan, Keitha, 2008. "Why do Queensland Urban Water Entities Resist the Adoption of User Pays Pricing?," Working Paper Series 3999, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    13. John Freebairn, 2013. "Imperfect Knowledge and Urban Water Decisions," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 32-40, March.
    14. Wayne Mayo, 1989. "Pricing for Capacity Utilisation with Public Enterprises," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(3), pages 16-24, September.
    15. Yew‐Kwang Ng, 1992. "Optimal Investment in Urban Drainage: A Framework for Cost‐Benefit Analysis," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 25(3), pages 19-28, July.
    16. Decaluwe, Bernard & Patry, André & Savard, Luc, 1997. "Quand l'eau n'est plus un don du ciel: un MEGC appliqué au Maroc," Cahiers de recherche 9716, Université Laval - Département d'économique.

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