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The cost of urban water utilities. A necessary analysis for rate setting and control

Author

Listed:
  • Ramón Barberán Ortí

    (Universidad de Zaragoza)

  • Alicia Costa Toda

    (Universidad de Zaragoza)

  • Alfonso Alegre Val

    (Universidad de Zaragoza)

Abstract

Urban water utilities are a typical case of a public service with regulated prices. This paper examines the costs of the service, which must be understood if rates are to be set and controlled on an appropriate basis. We adopt a highly practical approach. In the first place, we establish two cost classifications in order to establish the level and structure of the costs of the utility, analysing the difficulties inherent in calculation. We then go on to analyse the municipal water and sewerage service in the city of Zaragoza. This case study is of particular interest in a context where public information about the cost of such utilities and the cost systems employed is in short supply.The analysis reveals the practical difficulties inherent in the accurate classification and quantification of costs and highlights the weaknesses of the systems applied by both local entities and river basin agencies to capture the true economic costs of providing the utility. Our estimates suggest that costs are currently understated, and that the cost structure is taken as a point reference but not a key factor to determine the structure of water rates.

Suggested Citation

  • Ramón Barberán Ortí & Alicia Costa Toda & Alfonso Alegre Val, 2008. "The cost of urban water utilities. A necessary analysis for rate setting and control," Hacienda Pública Española / Review of Public Economics, IEF, vol. 186(3), pages 123-155, Octuber.
    • Handle: RePEc:hpe:journl:y:2008:v:186:i:3:p:123-155
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    References listed on IDEAS

    as
    1. Arbues, Fernando & Garcia-Valinas, Maria Angeles & Martinez-Espineira, Roberto, 2003. "Estimation of residential water demand: a state-of-the-art review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(1), pages 81-102, March.
    2. A. B. Atkinson & N. H. Stern, 1974. "Pigou, Taxation and Public Goods," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(1), pages 119-128.
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    More about this item

    Keywords

    water costs; recovery costs; water rates; price regulation; urban water utility; water supply and sewerage.;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Y - Miscellaneous Categories
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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