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The Relationships between Cost and User Charges: The Case of the Norwegian Utility Service

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Author Info

  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

Governments struggle with rising service spending, and user charges represent a possible incentive mechanism to control costs. This paper investigates the relationships between costs and user charges in the sewage industry in Norwegian local governments. The analysis addresses the following questions: (i) To what extent are increased costs passed on to consumers in higher user charges? (ii) Does user-charge financing lead to higher or lower unit cost? The econometric analysis indicates that 30-40% of a cost increase is passed on to consumers in higher user charges. Moreover, user-charge financing has a significant negative effect on the unit cost. An increase in user-charge financing by 10 percentage points is predicted to reduce the unit cost by up to 10%.

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Bibliographic Info

Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.

Volume (Year): 61 (2005)
Issue (Month): 1 (March)
Pages: 98-

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Handle: RePEc:mhr:finarc:urn:sici:0015-2218(200503)61:1_98:trbcau_2.0.tx_2-f

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Related research

Keywords: cost control; user charges; incentive mechanisms; principal-agent model; utility services;

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Cited by:
  1. Jørn Rattsø & Jon Hernes Fiva, 2005. "Decentralization with Property Taxation to Improve Incentives: Evidence from Local Governments’ Discrete Choice," Working Paper Series 5305, Department of Economics, Norwegian University of Science and Technology, revised 02 Sep 2005.
  2. Lars-Erik Borge & Jørn Rattsø, 2006. "Property taxation as incentive for cost control:Empirical evidence for utility services in Norway," Working Paper Series 7606, Department of Economics, Norwegian University of Science and Technology.

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