IDEAS home Printed from https://ideas.repec.org/p/akh/wcefip/047.html
   My bibliography  Save this paper

Increasing block pricing, household group segmentation and distributional characteristics

Author

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
    as

    Download full text from publisher

    File URL: https://cefip.econo.unlp.edu.ar/wp-content/uploads/2024/12/DT-47.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Robert D. Willig, 1978. "Pareto-Superior Nonlinear Outlay Schedules," Bell Journal of Economics, The RAND Corporation, vol. 9(1), pages 56-69, Spring.
    2. Leonardo Morales & Carlos Medina, 2007. "Stratification and Public Utility Services in Colombia: Subsidies to Households or Distortion of Housing Prices?," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 41-99, January.
    3. Kristin Komives & Vivien Foster & Jonathan Halpern & Quentin Wodon, 2005. "Water, Electricity, and the Poor : Who Benefits from Utility Subsidies?," World Bank Publications - Books, The World Bank Group, number 6361, April.
    4. Ahmad, Ehtisham & Stern, Nicholas, 1984. "The theory of reform and indian indirect taxes," Journal of Public Economics, Elsevier, vol. 25(3), pages 259-298, December.
    5. Sabrina Lozano, Jorge Puig, Diego Javier Fernández Felices, 2021. "Cambios en precios relativos y bienestar en Argentina. Una estimación en base a características distributivas," Económica, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata, vol. 67, pages 1-22, January-D.
    6. Severin Borenstein, 2012. "The Redistributional Impact of Nonlinear Electricity Pricing," American Economic Journal: Economic Policy, American Economic Association, vol. 4(3), pages 56-90, August.
    7. Navajas, Fernando & Porto, Alberto, 1994. "Budget shares, distributional characteristics and the direction of tax reform," Economics Letters, Elsevier, vol. 45(4), pages 475-479, August.
    8. Newbery, David M, 1995. "The Distributional Impact of Price Changes in Hungary and the United Kingdom," Economic Journal, Royal Economic Society, vol. 105(431), pages 847-863, July.
    9. Severin Borenstein & Lucas W. Davis, 2012. "The Equity and Efficiency of Two-Part Tariffs in U.S. Natural Gas Markets," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 75-128.
    10. Navajas, Fernando & Porto, Alberto, 1990. "La tarifa en dos partes cuasi óptima. Eficiencia, equidad y financiamiento," El Trimestre Económico, Fondo de Cultura Económica, vol. 57(228), pages 863-887, octubre-d.
    11. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, June.
    12. Navajas, Fernando H., 2009. "Engel curves, household characteristics and low-user tariff schemes in natural gas," Energy Economics, Elsevier, vol. 31(1), pages 162-168, January.
    13. Yew-Kwang Ng & Mendel Weisser, 1974. "Optimal Pricing with a Budget Constraint—The Case of the Two-part Tariff," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 41(3), pages 337-345.
    14. Scott P. Burger & Christopher R. Knittel & Ignacio J. Perez-Arriaga & Ian Schneider & Frederik vom Scheidt, 2020. "The Efficiency and Distributional Effects of Alternative Residential Electricity Rate Designs," The Energy Journal, , vol. 41(1), pages 199-240, January.
    15. Fernando H. Navajas, 2004. "Structural Reform and the Distributional Effects of Price Changes in Argentina 1988–98," International Economic Association Series, in: Enrique Bour & Daniel Heymann & Fernando Navajas (ed.), Latin American Economic Crises, chapter 13, pages 222-246, Palgrave Macmillan.
    16. Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, June.
    17. Martin S. Feldstein, 1972. "Equity and Efficiency in Public Sector Pricing: The Optimal Two-Part Tariff," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 86(2), pages 175-187.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Puig Julian & Navajas Fernando, 2024. "Energy Tariffs: Increasing block pricing, household group segmentation and distributional characteristics," Asociación Argentina de Economía Política: Working Papers 4755, Asociación Argentina de Economía Política.
    2. Walter Cont & Fernando Navajas & Francisco Pizzi & Alberto Porto, 2020. "Precios y tarifas de servicios públicos. Evolución. 1945-2018," Asociación Argentina de Economía Política: Working Papers 4328, Asociación Argentina de Economía Política.
    3. Hancevic, Pedro & Cont, Walter & Navajas, Fernando, 2016. "Energy populism and household welfare," Energy Economics, Elsevier, vol. 56(C), pages 464-474.
    4. Severin Borenstein & Lucas W. Davis, 2012. "The Equity and Efficiency of Two-Part Tariffs in U.S. Natural Gas Markets," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 75-128.
    5. repec:uta:papers:2005_04 is not listed on IDEAS
    6. José Silva Ruiz, 2010. "La eficiencia y la equidad en la fijación de precios de los servicios públicos: evolución de la teoría de la tarifa óptima en dos partes y el caso del servicio de agua potable," Revista CIFE, Universidad Santo Tomás, June.
    7. McRae, Shaun D. & Wolak, Frank A., 2021. "Retail pricing in Colombia to support the efficient deployment of distributed generation and electric stoves," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    8. Arik Levinson & Emilson Silva, 2022. "The Electric Gini: Income Redistribution through Energy Prices," American Economic Journal: Economic Policy, American Economic Association, vol. 14(2), pages 341-365, May.
    9. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    10. Roger Sherman & Michael Visscher, 1982. "Rate-of-Return Regulation and Two-Part Tariffs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 97(1), pages 27-42.
    11. Farrell, Niall & Humes, Harry, 2022. "Diminishing deadweight loss through energy subsidy cost recovery," Papers WP727, Economic and Social Research Institute (ESRI).
    12. Wu, Ya & Zhang, Li, 2017. "Evaluation of energy saving effects of tiered electricity pricing and investigation of the energy saving willingness of residents," Energy Policy, Elsevier, vol. 109(C), pages 208-217.
    13. Brent, Daniel A. & Wietelman, Derek & Wichman, Casey, 2025. "Conservation and Distributional Consequences of Pricing Scarce Water During Droughts," RFF Working Paper Series 25-07, Resources for the Future.
    14. Radulescu, Doina & Pavanini, Nicola & Feger, Fabian, 2016. "Welfare and Redistribution Effects of Alternative Tariffs in Energy Markets with Solar Power," VfS Annual Conference 2016 (Augsburg): Demographic Change 145669, Verein für Socialpolitik / German Economic Association.
    15. Pang‐Ryong Kim, 1997. "The Effect of Profit Regulations on Combined Two‐Part and Peak‐Load Pricing," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 238-247, September.
    16. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    17. Holguin-Veras, Jose & Jara-Diaz, Sergio, 1998. "Optimal pricing for priority service and space allocation in container ports," Transportation Research Part B: Methodological, Elsevier, vol. 33(2), pages 81-106, April.
    18. Simon P. Anderson & Régis Renault, 2011. "Price Discrimination," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 22, Edward Elgar Publishing.
    19. Fuente, David & Kabubo-Mariara, Jane & Kimuyu, Peter & Mwaura, Mbutu & Whittington, Dale, 2017. "Assessing the Performance of Alternative Water and Sanitation Tariffs: The Case of Nairobi, Kenya," EfD Discussion Paper 17-21, Environment for Development, University of Gothenburg.
    20. David Encaoua & Michel Moreaux, 1987. "L'analyse théorique des problèmes de tarification et d'allocation des coûts dans les télécommunications," Revue Économique, Programme National Persée, vol. 38(2), pages 375-414.
    21. Yin, Xiangkang, 2004. "Two-part tariff competition in duopoly," International Journal of Industrial Organization, Elsevier, vol. 22(6), pages 799-820, June.

    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

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:akh:wcefip:047. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Laura Carella (email available below). General contact details of provider: https://edirc.repec.org/data/funlpar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.