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Welfare Effects of Water Pricing in Germany

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  • Müller, Christopher

Abstract

The observed two-part tariff price structure (consisting of a lump-sum price and a linear marginal price) for drinking water in Germany does not reflect the cost structure reported in the literature. Recovering marginal costs from a sample of 251 German counties, we see that there are positive price–cost margins, while lump-sum prices are too low. A price-structure readjustment along welfare-economic principles (marginal cost pricing; lump-sum price ensures cost recovery) would increase the mean consumer surplus by 0.037% of the local GDP or € 2.129 million per county, assuming a share of 15% variable costs in total costs.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 41638.

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Date of creation: 19 Sep 2012
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Handle: RePEc:pra:mprapa:41638

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Keywords: residential water demand; welfare measurement; public water supply; equity– efficiency trade-off; marginal versus average price sensitivity; natural monopoly; public services;

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  1. Schleich, Joachim & Hillenbrand, Thomas, 2007. "Determinants of residential water demand in Germany," Working Papers "Sustainability and Innovation" S3/2007, Fraunhofer Institute for Systems and Innovation Research (ISI).
  2. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
  3. Johann Wackerbauer, 2003. "Regulierungsmodelle für die öffentliche Wasserversorgung und ihre Wettbewerbseffekte," Ifo Schnelldienst, Ifo Institute for Economic Research at the University of Munich, vol. 56(21), pages 9-16, November.
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