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A Socially Efficient Water Tariff Under the English Optional Metering Scheme

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  • Tatsuki Ueda
  • Peter Moffatt

Abstract

We design a socially-efficient water tariff in the institutional context of England, where water metering is largely optional and non-metered households are levied proportional to the rateable value (RV) of their property. Within this context, it is theoretically demonstrated that: the larger the RV, the more likely the household to opt for metering; and the larger the RV, the smaller the Demand Effect of Metering (DEM; the fall in water consumption resulting from metering). These two hypotheses are confirmed with econometric analyses using datasets provided by a water company operating in East Anglia, England. The results signify an adverse-selection problem: wealthier households are more likely to opt for metering, yet they are expected to exhibit a smaller DEM once a meter is installed. In order to overcome this, we propose a two-part tariff for metered households consisting of: a variable charge levied proportional to water consumption at a uniform price; and a progressive standing charge to place a heavier burden on wealthier households. The latter component has a potentially major role in attaining social efficiency of metering, by encouraging poorer households to install meters whilst discouraging wealthier ones. The optimal two-part tariff is determined empirically. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Tatsuki Ueda & Peter Moffatt, 2013. "A Socially Efficient Water Tariff Under the English Optional Metering Scheme," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(4), pages 495-523, April.
  • Handle: RePEc:kap:enreec:v:54:y:2013:i:4:p:495-523
    DOI: 10.1007/s10640-012-9603-1
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    References listed on IDEAS

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    1. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    2. Simon Dresner & Paul Ekins, 2006. "Design of environmentally and socially conscious water metering tariffs for the UK," Journal of Environmental Planning and Management, Taylor & Francis Journals, vol. 49(6), pages 909-928.
    3. Manski, Charles F & Lerman, Steven R, 1977. "The Estimation of Choice Probabilities from Choice Based Samples," Econometrica, Econometric Society, vol. 45(8), pages 1977-1988, November.
    4. Simon Cowan, 2010. "The Welfare Economics of Optional Water Metering," Economic Journal, Royal Economic Society, vol. 120(545), pages 800-815, June.
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    Cited by:

    1. Grillos, Tara & Zarychta, Alan & Nelson Nuñez, Jami, 2021. "Water scarcity & procedural justice in Honduras: Community-based management meets market-based policy," World Development, Elsevier, vol. 142(C).
    2. Manuel Meireles & Cida Sanches & Samuel Ferreira & José Osvaldo De Sordi & Givaldo Santos, 2016. "Social Efficiency of For-profit Organizations in Brazil: An Empirical Analysis," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 128(2), pages 909-928, September.
    3. Cairns, Maryann R., 2018. "Metering water: Analyzing the concurrent pressures of conservation, sustainability, health impact, and equity in use," World Development, Elsevier, vol. 110(C), pages 411-421.

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