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Consumer Demand and Welfare under Increasing Block Pricing

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  • Panos Pashardes
  • Soteroula Hajispyrou

Abstract

This paper argues that an increasing block pricing structure needs to be supplemented by allowances for household size and composition to be equitable. Household behaviour is modelled as the outcome of a two-stage budgeting resulting in an integrable water demand model. The welfare effects of block pricing are studied using the concept of relative equivalence scale, modified to allow for the dependence of price on household size and composition. We use individual household data to estimate residential demand for water, provide empirical illustration of the welfare effects of increasing block pricing on demographically different households and show how these effects can be compensated.

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File URL: http://papers.econ.ucy.ac.cy/RePEc/papers/0207.pdf
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Bibliographic Info

Paper provided by University of Cyprus Department of Economics in its series University of Cyprus Working Papers in Economics with number 0207.

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Length: 22 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:ucy:cypeua:0207

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Web page: http://www.econ.ucy.ac.cy

Related research

Keywords: relative equivalence scales; price endogeneity; demand for water;

References

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Cited by:
  1. Hoffmann, Mark & Worthington, Andrew & Higgs, Helen, 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), September.
  2. Ramón Barberán & Fernando Arbués, 2009. "Equity in Domestic Water Rates Design," Water Resources Management, Springer, vol. 23(10), pages 2101-2118, August.

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