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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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    Cited by:

    1. Richard G. Lipsey, 2012. "A critique of Ng's third-best theory," Discussion Papers dp12-02, Department of Economics, Simon Fraser University.
    2. 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.
    3. Productivity Commission, 2008. "Towards Urban Water Reform: A Discussion Paper," Research Papers 0801, Productivity Commission, Government of Australia.
    4. 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.
    5. 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.
    6. 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.
    7. Wayne Mayo, 1989. "Pricing for Capacity Utilisation with Public Enterprises," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 22(3), pages 16-24.
    8. Simshauser, Paul, 2016. "Distribution network prices and solar PV: Resolving rate instability and wealth transfers through demand tariffs," Energy Economics, Elsevier, vol. 54(C), pages 108-122.

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