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Municipal Water Supply and Sewage Treatment: Costs, Prices and Distortions

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  • Steven Renzetti

Abstract

Municipal water supply and sewage treatment utilities in Ontario, Canada, are studied in order to establish their costs of supply and evaluate their pricing practices. Prices charged to residential and commercial customers are found to be only one-third and one-sixth of the estimated marginal cost for water supply and sewage treatment, respectively. For example, the average price to residential customers is $0.32m[superscript 3], while the estimated marginal cost is $0.87/m[superscript 3]. The estimated cost parameters are combined with estimated residential and nonresidential demands functions in order to calculate approximate welfare losses that arise from overconsumption.

Suggested Citation

  • Steven Renzetti, 1999. "Municipal Water Supply and Sewage Treatment: Costs, Prices and Distortions," Canadian Journal of Economics, Canadian Economics Association, vol. 32(3), pages 688-704, May.
  • Handle: RePEc:cje:issued:v:32:y:1999:i:3:p:688-704
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    References listed on IDEAS

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    Cited by:

    1. Carvalho, Pedro & Marques, Rui Cunha & Berg, Sanford, 2012. "A meta-regression analysis of benchmarking studies on water utilities market structure," Utilities Policy, Elsevier, vol. 21(C), pages 40-49.
    2. Park, Sun-Young & Lee, Kyoung-Sil & Yoo, Seung-Hoon, 2016. "Economies of scale in the Korean district heating system: A variable cost function approach," Energy Policy, Elsevier, vol. 88(C), pages 197-203.
    3. Nicholas Rivers & Steven Groves, 2013. "The Welfare Impact of Self-supplied Water Pricing in Canada: A Computable General Equilibrium Assessment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(3), pages 419-445, July.
    4. Elham Erfanian & Alan R. Collins, 2017. "Charges for Water and Access: What Explains the Differences in West Virginia Municipalities?," Working Papers Working Paper 2017-02, Regional Research Institute, West Virginia University.
    5. Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).
    6. Philippe Marin, 2009. "Public-Private Partnerships for Urban Water Utilities : A Review of Experiences in Developing Countries," World Bank Publications, The World Bank, number 2703.
    7. Steven Renzetti & Diane P. Dupont, 2009. "Measuring the Technical Efficiency of Municipal Water Suppliers: The Role of Environmental Factors," Land Economics, University of Wisconsin Press, vol. 85(4), pages 627-636.
    8. Maria Corton, 2011. "Sector fragmentation and aggregation of service provision in the water industry," Journal of Productivity Analysis, Springer, vol. 35(2), pages 159-169, April.
    9. Kristof Witte & Rui Marques, 2011. "Big and beautiful? On non-parametrically measuring scale economies in non-convex technologies," Journal of Productivity Analysis, Springer, pages 213-226.
    10. DIAKITE Daouda & SEMENOV Aggey & THOMAS Alban, 2006. "Social Pricing and Water Provision in Côte d'Ivoire," LERNA Working Papers 06.14.207, LERNA, University of Toulouse.
    11. Tsegai, Daniel W. & Linz, Teresa & Kloos, Julia, 2009. "Economic analysis of water supply cost structure in the Middle Olifants sub-basin of South Africa," Discussion Papers 49926, University of Bonn, Center for Development Research (ZEF).
    12. Saal David S. & Arocena Pablo & Maziotis Alexandros & Triebs Thomas, 2013. "Scale and Scope Economies and the Efficient Vertical and Horizontal Configuration of the Water Industry: A Survey of the Literature," Review of Network Economics, De Gruyter, vol. 12(1), pages 93-129, March.
    13. Lijin Zhong & Arthur Mol, 2010. "Water Price Reforms in China: Policy-Making and Implementation," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(2), pages 377-396, January.
    14. Diane Dupont & Steven Renzetti, 2001. "The Role of Water in Manufacturing," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 18(4), pages 411-432, April.
    15. Andrés Chambouleyron, 2004. "Optimal Water Metering and Pricing," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 18(4), pages 305-319, August.
    16. Richard M. Bird, 2005. "Evaluating Public Expenditures: Does It Matter How They are Financed?," International Tax Program Papers 0506, International Tax Program, Institute for International Business, Joseph L. Rotman School of Management, University of Toronto.
    17. Torres, Marcelo & Morrison Paul, Catherine J., 2006. "Driving forces for consolidation or fragmentation of the US water utility industry: A cost function approach with endogenous output," Journal of Urban Economics, Elsevier, vol. 59(1), pages 104-120, January.
    18. Satya Mohapatra & Anne Mitchell, 2009. "Groundwater Demand Management in the Great Lakes Basin—Directions for New Policies," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(3), pages 457-475, February.
    19. Andrea Guerrini & Giulia Romano & Bettina Campedelli, 2013. "Economies of Scale, Scope, and Density in the Italian Water Sector: A Two-Stage Data Envelopment Analysis Approach," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(13), pages 4559-4578, October.
    20. Ching-Yao Irene Lai & C.C. Yang, 2014. "Scale Effect Versus Induced Policy Response In The Environmental Kuznets Curve: The Case Of U.S. Water Pollution," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 435-450, April.
    21. Ferro, Gustavo & Lentini, Emilio & Mercadier, Augusto & Romero, Carlos A., 2010. "Retornos a escala en agua y saneamiento: estimaciones para América Latina
      [Returns to scale in water and sanitation: estimates for Latin Amercia]
      ," MPRA Paper 20324, University Library of Munich, Germany, revised Jan 2010.

    More about this item

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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