Pricing for Scarcity
AbstractIn many areas where water is not abundant, water pricing schedules contain significant nonlinearities. Existing pricing literature establishes that efficient schedules will depend on demand and supply characteristics. However, most empirical studies show that actual pricing schemes have little to do with theoretical efficiency results. In particular, there are very few models recommending increasing blocks, whereas we present evidence that this type of tariff structure is abundantly used. Water managers often defend increasing blocks, both as a means to benefit smaller users and as a way to signal scarcity. Naturally, in the presence of water scarcity the true cost of water increases due to the emergence of a scarcity cost. In this paper, we incorporate the scarcity cost associated with insufficient water availability into the optimal tariff design in several different models. We show that when both demand and costs respond to climate factors, increasing marginal prices may come about as a combined result of scarcity and customer heterogeneity under specific conditions. We also investigate the effect that rising water scarcity in the long run can have on the steady-state amount of capital invested in water storage and supply infrastructures and obtain some results that are consistent with the static models.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10384.
Date of creation: Jun 2008
Date of revision:
water pricing; nonlinear pricing; increasing block tariffs; water scarcity;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Henrique Monteiro, 2005. "Water Pricing Models: a survey," Others 0510002, EconWPA.
- Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008.
- Monteiro, Henrique & Roseta-Palma, Catarina, 2007.
"Caracterização dos tarifários de abastecimento de água e saneamento em Portugal
[Portuguese Water Supply and Sewage Tariffs Report]," MPRA Paper 4238, University Library of Munich, Germany.
- James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
- Schuck, Eric C. & Green, Gareth P., 2002. "Supply-based water pricing in a conjunctive use system: implications for resource and energy use," Resource and Energy Economics, Elsevier, vol. 24(3), pages 175-192, June.
- Anne Briand, 2006. "Marginal Cost Versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water," Working Papers 2006.144, Fondazione Eni Enrico Mattei.
- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, February.
- Mark Hoffmann & Andrew Worthington & Helen Higgs, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 347-359, 09.
- Rita Martins & Carlota Quintal & Eduardo Barata & Luís Cruz, 2010. "Water Pricing and Social Equity in Portuguese Municipalities," GEMF Working Papers 2010-17, GEMF - Faculdade de Economia, Universidade de Coimbra.
- Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).
- Robert W. Adler, 2010. "Drought, Sustainability, and the Law," Sustainability, MDPI, Open Access Journal, vol. 2(7), pages 2176-2196, July.
- Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
- Rita Martins & Carlota Quintal & Ana Pimentel, 2009. "Equidade: a chave para explicar os tarifários de água em Portugal?," Notas Económicas, Faculdade de Economia, Universidade de Coimbra, issue 29, pages 41-53, June.
- Griffin, Ronald C. & Mjelde, James W., 2011. "Distributing water's bounty," Ecological Economics, Elsevier, vol. 72(C), pages 116-128.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.