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Measuring the Dynamic Efficiency Costs of Regulators' Preferences: Municipal Water Utilities in the Arid West

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  • Christopher Timmins

    (Department of Economics, Yale University, P. O. Box 208264, New Haven, CT 06520-8264, U.S.A.)

Abstract

Evidence suggests that municipal water utility administrators in the western US price water significantly below its marginal cost and, in so doing, inefficiently exploit aquifer stocks and induce social surplus losses. This paper empirically identifies the objective function of those managers, measures the deadweight losses resulting from their price-discounting decisions, and recovers the efficient water pricing policy function from counterfactual experiments. In doing so, the estimation uses a "continuous-but-constrained- control" version of a nested fixed-point algorithm in order to measure the important intertemporal consequences of groundwater pricing decisions. Copyright The Econometric Society 2002.

Suggested Citation

  • Christopher Timmins, 2002. "Measuring the Dynamic Efficiency Costs of Regulators' Preferences: Municipal Water Utilities in the Arid West," Econometrica, Econometric Society, vol. 70(2), pages 603-629, March.
    • Handle: RePEc:ecm:emetrp:v:70:y:2002:i:2:p:603-629
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    References listed on IDEAS

    as
    1. Christopher Timmins, 2003. "Demand-Side Technology Standards Under Inefficient Pricing Regimes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 26(1), pages 107-124, September.
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    5. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444590, November.
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    8. Baron, David P., 1989. "Design of regulatory mechanisms and institutions," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 24, pages 1347-1447, Elsevier.
    9. R. Bruce Billings, 1982. "Specification of Block Rate Price Variables in Demand Models," Land Economics, University of Wisconsin Press, vol. 58(3), pages 386-394.
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