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Demand and distributional effects of water pricing policies

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  • Ruijs, A.
  • Zimmermann, A.
  • van den Berg, M.

Abstract

Worldwide, water scarcity threatens delivery of water to urban centers. Water pricing is often recommended to reduce demand. In this paper, demand and distributional effects of water pricing policies are examined in a block pricing model that is applied to the Metropolitan Region of São Paulo. Water demand functions are estimated using marginal and average price models based on monthly data for the period 1997-2002. Price elasticities of water demand range between - 0.45 and - 0.50 and income elasticities between 0.39 and 0.42. For the current combined regressive-progressive block price system, the poor spend almost 4.2% to 4.7% of their income on water. The rich only pay 0.4% to 0.5% of their income whereas they consume more than twice as much. A progressive block price or an income dependent price system may result in a more equalized income distribution. However, the analysis shows that there is a trade-off between a more equalized income distribution and revenues earned by the water company. More pro-poor pricing systems, may result as well in lower revenues for the water company.

Suggested Citation

  • Ruijs, A. & Zimmermann, A. & van den Berg, M., 2008. "Demand and distributional effects of water pricing policies," Ecological Economics, Elsevier, vol. 66(2-3), pages 506-516, June.
  • Handle: RePEc:eee:ecolec:v:66:y:2008:i:2-3:p:506-516
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    2. 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).
    3. María Pérez-Urdiales & María A. García-Valiñas & Roberto Martínez-Espiñeira, 2016. "Responses to Changes in Domestic Water Tariff Structures: A Latent Class Analysis on Household-Level Data from Granada, Spain," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 63(1), pages 167-191, January.
    4. Whittington, Dale & Nauges, Céline & Fuente, David & Wu, Xun, 2015. "A diagnostic tool for estimating the incidence of subsidies delivered by water utilities in low- and medium-income countries, with illustrative simulations," Utilities Policy, Elsevier, vol. 34(C), pages 70-81.
    5. Marie-Estelle Binet & Fabrizio Carlevaro & Michel Paul, 2012. "Estimation of Residential Water Demand with Imprecise Price Perception," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201233, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    6. Schleich, Joachim & Hillenbrand, Thomas, 2009. "Determinants of residential water demand in Germany," Ecological Economics, Elsevier, vol. 68(6), pages 1756-1769, April.
    7. Marie-Estelle Binet & Fabrizio Carlevaro & Michel Paul, 2014. "Estimation of Residential Water Demand with Imperfect Price Perception," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(4), pages 561-581, December.
    8. repec:gam:jsusta:v:9:y:2017:i:9:p:1515-:d:109866 is not listed on IDEAS
    9. Pinto, Francisco Silva & Marques, Rui Cuhna, 2015. "Tariff recommendations: A Panacea for the Portuguese water sector?," Utilities Policy, Elsevier, vol. 34(C), pages 36-44.
    10. Arjan Ruijs, 2009. "Welfare and Distribution Effects of Water Pricing Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 161-182, June.
    11. Maria A. García‐Valiñas & Roberto Martínez‐Espiñeira & Francisco González‐Gómez, 2010. "Economics of Water Reform in the Murray-Darling Basin," Centre for Water Economics, Environment and Policy Papers 1005, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    12. Pablo Gálvez & Petr Mariel & David Hoyos, 2016. "Análisis de la demanda residencial de los servicios básicos en España usando un modelo QUAIDS censurado," Estudios de Economia, University of Chile, Department of Economics, vol. 43(1 Year 20), pages 5-28, June.
    13. Maria A. García-Valiñas & Roberto Martínez-Francisco & González-Gómez, 2010. "Water affordability: alternativem measurement and explanatory Factors in Andalusia," Centre for Water Economics, Environment and Policy Papers 1014, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    14. Barbosa, Alexandro & Brusca, Isabel, 2015. "Governance structures and their impact on tariff levels of Brazilian water and sanitation corporations," Utilities Policy, Elsevier, vol. 34(C), pages 94-105.
    15. Renzetti, Steven & Dupont, Diane P. & Chitsinde, Tina, 2015. "An empirical examination of the distributional impacts of water pricing reforms," Utilities Policy, Elsevier, vol. 34(C), pages 63-69.
    16. Barde, Julia Alexa & Lehmann, Paul, 2013. "Distributional effects of water tariff reforms: An empirical study for Lima, Peru," UFZ Discussion Papers 14/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).

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