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Institutional, geographic, and facility factors affecting differences in prices for wastewater services


  • Suho Bae


  • Sheldon Gen


  • Seong-Gin Moon



The provision of wastewater services is an important infrastructure service that affects social welfare. It improves the quality of community life by promoting sanitary conditions and minimizing the negative impact of wastewater on ecosystems. The price for this important public service, however, varies considerably across regions and localities. In this paper, we examine the physical factors and institutional characteristics that affect wastewater service prices across regions and localities. Our major concerns are the following: (1) institutional arrangements and characteristics of a wastewater utility, (2) government regulations, (3) supply factors and characteristics, and (4) natural environments and local characteristics. To analyze the price differences, we employ the demand and price equations for wastewater services using a simultaneous equations framework. For empirical estimation, we utilize a seemingly unrelated regression (SUR) method to account for the correlations between the residuals in the four price equations for wastewater services. Our empirical results are that the institutional arrangement of services, including monthly charges (versus bi-monthly or quarterly charges), provision of other infrastructure services in addition to wastewater services, and long-term debt, explain much of the price difference. In addition, the wastewater prices are influenced by state environmental regulations as well as supply factors, such as the number of wastewater treatment plants and infiltration and inflow into the sewer system. Interestingly, local geographic and meteorologic factors that were hypothesized to affect the selection of treatment processes were not found to be associated with price. These findings suggest ways wastewater services might be offered at lower prices for users. Copyright Springer-Verlag 2012

Suggested Citation

  • Suho Bae & Sheldon Gen & Seong-Gin Moon, 2012. "Institutional, geographic, and facility factors affecting differences in prices for wastewater services," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 49(3), pages 767-788, December.
  • Handle: RePEc:spr:anresc:v:49:y:2012:i:3:p:767-788 DOI: 10.1007/s00168-011-0441-9

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    References listed on IDEAS

    1. Bae, Suho, 2007. "Explaining Geographical Differences in Water Prices: Do Institutional Factors Really Matter?," The Review of Regional Studies, Southern Regional Science Association, vol. 37(2), pages 207-250.
    2. T. S. Breusch & A. R. Pagan, 1980. "The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 239-253.
    3. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    4. Cameron,A. Colin & Trivedi,Pravin K., 2008. "Microeconometrics," Cambridge Books, Cambridge University Press, number 9787111235767, March.
    5. Halvorsen, Robert, 1975. "Residential Demand for Electric Energy," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 12-18, February.
    6. Steve H. Hanke & Roland W. Wentworth, 1981. "On the Marginal Cost of Wastewater Services," Land Economics, University of Wisconsin Press, vol. 57(4), pages 558-567.
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    More about this item


    Q25; Q27; Q21; C31;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q27 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Issues in International Trade
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models


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