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Increasing block pricing, household group segmentation and distributional characteristics

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Listed:
  • Fernando Navajas
  • Julián Puig

Abstract

The paper models the implementation of increasing block pricing (IBP) coupled with household group segmentation by incomes (high, middle and low) and find necessary conditions for use of progressive block prices and fixed charges based on the distributional characteristics of blocks. It evaluates the recent combination of IBP and group segmentation in residential electricity and natural gas in Argentina using current rate schedules for the Metropolitan Area of Buenos Aires and microdata from the latest Household Expenditure Survey. The findings indicate that those conditions are not validated by the data and estimates and do not justify IBP of fixed charges and marginal prices across blocks within a given household group. Additionally, inconsistencies are observed across groups, with the rate structure (fixed charges for both electricity and natural gas, and block prices for electricity) of the middle-income group being unduly close to that of the low-income group. The analysis provides some justification for the discrimination in natural gas (distribution) prices between Buenos Aires City and Greater Buenos Aires within a given group, due to income disparities between households in both areas. The study suggests a direction of reform towards smaller dispersion of energy prices across groups so as to reduce subsidies and advocate for a shift from IBP to a Two-Part Tariff, incorporating lump sum redistribution across groups.

Suggested Citation

  • Fernando Navajas & Julián Puig, 2024. "Increasing block pricing, household group segmentation and distributional characteristics," CEFIP, Working Papers 047, CEFIP, Universidad Nacional de La Plata.
    • Handle: RePEc:akh:wcefip:047
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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