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Investigating affordability problems of utility services - a theoretical study on the ratio measure

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  • Gawel, Erik
  • Bretschneider, Wolfgang
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    Abstract

    Unlike in developing countries, there tends to be no problem of access to water, electricity, and heating for private households in transition countries. However, transition countries have a considerable amount of low-income households, and the problem of affordability of these environmental-related utility services remains urgent. Welfare economics literature suggests to neglect affordability aspects by separating allocative from distributive impacts of pricing. In practice, this separation runs the risk of rendering impossible any sustainability-oriented price reform. An Institutional Economics approach takes competing objectives into account. From this viewpoint it appears to be worth investigating the affordability-concept. Although the affordability-related research has escalated remarkably in recent years, the theoretical contributions are still limited. Hence, we focus on the simple ratio measure often used in practice. We analyze the arguments speaking for the 'potential affordability approach'. But we find that - within that approach - adhering formally to the ratio measure is possible only under conditions that make no sense regarding the concern of the measure. Thus for most cases the ratio measure is misleading. Some considerations on practical use for governance conclude the paper. --

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    Bibliographic Info

    Paper provided by Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in its series IAMO Forum 2010: Institutions in Transition – Challenges for New Modes of Governance with number 52714.

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    Date of creation: 2010
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    Handle: RePEc:zbw:iamo10:52714

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    Keywords: Affordability; Transition Countries; Utility Services;

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    1. Raffaele Miniaci & Carlo Scarpa & Paola Valbonesi, 2008. "Measuring The Affordability Of Basic Public Utility Services In Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 67(2), pages 185-230, July.
    2. Samuel Fankhauser & Sladjana Tepic, 2005. "Can poor consumers pay for energy and water? An affordability analysis for transition countries," Working Papers 92, European Bank for Reconstruction and Development, Office of the Chief Economist.
    3. Sherry A. Glied, 2008. "Mandates and the Affordability of Health Care," NBER Working Papers 14545, National Bureau of Economic Research, Inc.
    4. Kessides, Ioannis & Miniaci, Raffaele & Scarpa, Carlo & Valbonesi, Paola, 2009. "Toward defining and measuring the affordability of public utility services," Policy Research Working Paper Series 4915, The World Bank.
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