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Welfare and Distribution Effects of Water Pricing Policies

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  • Ruijs, Arjan

Abstract

In this paper, distribution and welfare effects of changes in block price systems are evaluated. A method is discussed to determine, for a Marshallian demand function, equivalent variation in case of a block price system. The method is applied to analyze welfare and distribution effects of changing water prices in the Metropolitan Region of São Paulo. Results show that there is a trade off between average welfare and income distribution. A pro-poor price system may result in lower average welfare than a flat price system, but in higher individual welfare for the poor. Moreover, there is a trade off between revenues for the water company and income distribution. Even though pro-poor price systems may not be as good for average welfare as flat price systems, their direct effects on poverty are important. Introducing pro-poor price systems, however, may have financial consequences for the water companies.

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  • Ruijs, Arjan, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Natural Resources Management Working Papers 7441, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemnr:7441
    DOI: 10.22004/ag.econ.7441
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