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Welfare and Distribution Effects of Water Pricing Policies

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  • Arjan Ruijs

    (Wageningen University)

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    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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    Bibliographic Info

    Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.92.

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    Date of creation: Sep 2007
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    Handle: RePEc:fem:femwpa:2007.92

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    Keywords: Water Demand; Welfare Economics; Equivalent Variation;

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    16. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
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