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Measuring the Dynamic Efficiency Costs of Regulators' Preferences: Municipal Water Utilities in the Arid West

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  • Christopher Timmins

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    (Department of Economics, Yale University, P. O. Box 208264, New Haven, CT 06520-8264, U.S.A.)

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    Abstract

    Evidence suggests that municipal water utility administrators in the western US price water significantly below its marginal cost and, in so doing, inefficiently exploit aquifer stocks and induce social surplus losses. This paper empirically identifies the objective function of those managers, measures the deadweight losses resulting from their price-discounting decisions, and recovers the efficient water pricing policy function from counterfactual experiments. In doing so, the estimation uses a "continuous-but-constrained- control" version of a nested fixed-point algorithm in order to measure the important intertemporal consequences of groundwater pricing decisions. Copyright The Econometric Society 2002.

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    Bibliographic Info

    Article provided by Econometric Society in its journal Econometrica.

    Volume (Year): 70 (2002)
    Issue (Month): 2 (March)
    Pages: 603-629

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    Handle: RePEc:ecm:emetrp:v:70:y:2002:i:2:p:603-629

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    1. R. Bruce Billings, 1982. "Specification of Block Rate Price Variables in Demand Models," Land Economics, University of Wisconsin Press, vol. 58(3), pages 386-394.
    2. Feigenbaum, Susan & Teeples, Ronald, 1983. "Public versus Private Water Delivery: A Hedonic Cost Approach," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 672-78, November.
    3. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March.
    4. Christopher Timmins, 2003. "Demand-Side Technology Standards Under Inefficient Pricing Regimes," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 26(1), pages 107-124, September.
    5. Rust, J., 1991. "Estimation of dynamic Structural Models: Problems and Prospects Part I : Discrete Decision Processes," Working papers 9106, Wisconsin Madison - Social Systems.
    6. John L. Mikesell & Patrick C. Mann, 1976. "Pricing by Rural Electric Cooperatives," Land Economics, University of Wisconsin Press, vol. 52(1), pages 96-102.
    7. Knapp Keith C. & Olson Lars J., 1995. "The Economics of Conjunctive Groundwater Management with Stochastic Surface Supplies," Journal of Environmental Economics and Management, Elsevier, vol. 28(3), pages 340-356, May.
    8. Baron, David P & Myerson, Roger B, 1982. "Regulating a Monopolist with Unknown Costs," Econometrica, Econometric Society, vol. 50(4), pages 911-30, July.
    9. Swallow, Stephen K. & Marin, Carlos M., 1988. "Long run price inflexibility and efficiency loss for municipal water supply," Journal of Environmental Economics and Management, Elsevier, vol. 15(2), pages 233-247, June.
    10. Oscar R. Burt, 1964. "Optimal Resource Use Over Time with an Application to Ground Water," Management Science, INFORMS, vol. 11(1), pages 80-93, September.
    11. Peltzman, Sam, 1971. "Pricing in Public and Private Enterprises: Electric Utilities in the United States," Journal of Law and Economics, University of Chicago Press, vol. 14(1), pages 109-47, April.
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    Cited by:
    1. Amy Finkelstein, 2007. "E-ZTax: Tax Salience and Tax Rates," NBER Working Papers 12924, National Bureau of Economic Research, Inc.
    2. Baisa, Brian & Davis, Lucas W. & Salant, Stephen W. & Wilcox, William, 2010. "The welfare costs of unreliable water service," Journal of Development Economics, Elsevier, vol. 92(1), pages 1-12, May.
    3. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    4. Worthington, Andrew C., 2010. "Commercial and Industrial Water Demand Estimation: Theoretical and Methodological Guidelines for Applied Economics Research/Estimación de la demanda de agua comercial e industrial: pautas teóricas y," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 28, pages 237-258, Agosto.
    5. Pérez Montes, Carlos, 2013. "Regulatory bias in the price structure of local telephone service," International Journal of Industrial Organization, Elsevier, vol. 31(5), pages 462-476.
    6. Arpke, Angela & Strong, Kelly, 2006. "A comparison of life cycle cost analyses for a typical college dormitory using subsidized versus full-cost pricing of water," Ecological Economics, Elsevier, vol. 58(1), pages 66-78, June.
    7. María Angeles García Valiñas, 2005. "Promotion and remuneration of university professors: from the LRU to the COU," Hacienda Pública Española, IEF, vol. 172(1), pages 119-143, June.
    8. Lourens Broersma & Arjen Edzes & Jouke van Dijk, 2011. "Have Dutch Municipalities Become More Efficient in Managing the Costs of Social Assistance Dependency? (refereed paper)," ERSA conference papers ersa10p177, European Regional Science Association.
    9. Wallsten, Scott & Kosec, Katrina, 2008. "The effects of ownership and benchmark competition: An empirical analysis of U.S. water systems," International Journal of Industrial Organization, Elsevier, vol. 26(1), pages 186-205, January.

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