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Equity, Efficiency and Financial Viability: Public-Utility Pricing with Special Reference to Water Supply

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  • Yew-Kwang Ng

Abstract

The pricing and investment policies of a public enterprise should be designed to achieve efficiency since equity is better pursued by general policy regarding income distribution. Short-run marginal-cost pricing does not generally lead to long-term deficit, but may involve price and surplus/deficit cycles for the case with lumpy investments and growing demand, where the price increases with demand but is reduced with capacity expansion. Taking account of the extra costs of government revenue collection and the likely average price/cost ratio in the economy, the third-best pricing policy is likely to result in long-term surplus, making the objectives of equity, efficiency and financial viability much more consistent with each other than is generally believed. This is particularly true for water with historically increasing costs of additional sources of supply. Copyright 1987 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.

Suggested Citation

  • Yew-Kwang Ng, 1987. "Equity, Efficiency and Financial Viability: Public-Utility Pricing with Special Reference to Water Supply," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 20(3), pages 21-35.
  • Handle: RePEc:bla:ausecr:v:20:y:1987:i:3:p:21-35
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-8462.1987.tb00669.x
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    References listed on IDEAS

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    1. David N. Laband, 1990. "Is There Value-Added from the Review Process in Economics?: Preliminary Evidence from Authors," The Quarterly Journal of Economics, Oxford University Press, pages 341-352.
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    5. John Creedy, 2001. "Starting Research," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, pages 116-124.
    6. Joshua S. Gans & George B. Shepherd, 1994. "How Are the Mighty Fallen: Rejected Classic Articles by Leading Economists," Journal of Economic Perspectives, American Economic Association, pages 165-179.
    7. Daniel S. Hamermesh, 1992. "The Young Economist's Guide to Professional Etiquette," Journal of Economic Perspectives, American Economic Association, pages 169-179.
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    Cited by:

    1. Edwards, Geoff W., 2012. "The Desalination Plant, The North-South Pipeline And The Welfare Of Melburnians," 2012 Conference (56th), February 7-10, 2012, Freemantle, Australia 124292, Australian Agricultural and Resource Economics Society.
    2. Richard G. Lipsey, 2012. "A critique of Ng's third-best theory," Discussion Papers dp12-02, Department of Economics, Simon Fraser University.
    3. John Freebairn, 2009. "Should Households and Businesses Receive Compensation for the Costs of Greenhouse Gas Emissions?," Department of Economics - Working Papers Series 1071, The University of Melbourne.
    4. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    5. Michael Pickford, 1996. "Pricing Access to Essential Facilities," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 3(2), pages 165-176.
    6. Simshauser, Paul, 2016. "Distribution network prices and solar PV: Resolving rate instability and wealth transfers through demand tariffs," Energy Economics, Elsevier, pages 108-122.
    7. Stephen P. King, 1995. "Guaranteeing Access to Essential Infrastructure," Agenda - A Journal of Policy Analysis and Reform, Australian National University, College of Business and Economics, School of Economics, vol. 2(4), pages 423-431.

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