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Household demand and welfare: implications of water pricing in Cyprus

Author

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  • Hajispyrou, Soteroula
  • Koundouri, Phoebe
  • Pashardes, Panos

Abstract

This paper considers a model of household demand for water in a theoretical framework consistent with fundamental principles of consumer behaviour. It applies this model to individual household data to estimate the price and income elasticities of residential demand for water in Cyprus and evaluate the welfare effects associated with changes in the water pricing system. We find that the current regionally heterogeneous, increasing block-pricing system introduces gross price distortions that are not justified on efficiency grounds. A shift towards uniform marginal cost pricing will eliminate the deadweight loss of the current system. However, its benefits will be distributed in favour of the better-off households.

Suggested Citation

  • Hajispyrou, Soteroula & Koundouri, Phoebe & Pashardes, Panos, 2002. "Household demand and welfare: implications of water pricing in Cyprus," Environment and Development Economics, Cambridge University Press, vol. 7(4), pages 659-685, October.
    • Handle: RePEc:cup:endeec:v:7:y:2002:i:04:p:659-685_00
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    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation

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