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The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service

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  • Lars-Erik Borge
  • Jørn Rattsø

Abstract

The paper investigates the relationships between costs and user charges in the sewage industry in Norwegian local governments. The purpose of the analysis is to answer the following questions: (i) To what extent is a higher unit cost passed on to consumers in terms of a higher user charge? (ii) Does user charge financing lead to higher or lower unit cost? The econometric analysis indicates that around 40 per cent of a cost increase is passed on to consumers in terms of higher user charge. Moreover, user charge financing has a significant negative effect on the unit cost. An increase in the degree of user charge financing by 10 per cent-points is predicted to reduce the unit cost by 5-8 per cent.

Suggested Citation

  • Lars-Erik Borge & Jørn Rattsø, 2003. "The Relationships Between Costs and User Charges: The Case of a Norwegian Utility Service," CESifo Working Paper Series 1033, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_1033
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp1033.pdf
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    References listed on IDEAS

    as
    1. Borge, Lars-Erik & Rattso, Jorn, 1995. "Demographic shift, relative costs and the allocation of local public consumption in Norway," Regional Science and Urban Economics, Elsevier, vol. 25(6), pages 705-726, December.
    2. Borge, Lars-Erik, 2000. "Charging for public services: the case of utilities in Norwegian local governments," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 703-718, December.
    3. Hoxby, Caroline M., 1999. "The productivity of schools and other local public goods producers," Journal of Public Economics, Elsevier, vol. 74(1), pages 1-30, October.
    4. Borge, Lars-Erik, 1995. "Economic and Political Determinants of Fee Income in Norwegian Local Governments," Public Choice, Springer, vol. 83(3-4), pages 353-373, June.
    5. Glaeser, Edward L, 1996. "The Incentive Effects of Property Taxes on Local Governments," Public Choice, Springer, vol. 89(1-2), pages 93-111, October.
    6. James M. Poterba, 1997. "Demographic structure and the political economy of public education," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 16(1), pages 48-66.
    7. Borge, Lars-Erik & Rattsø, Jørn, 2008. "Property taxation as incentive for cost control: Empirical evidence for utility services in Norway," European Economic Review, Elsevier, vol. 52(6), pages 1035-1054, August.
    8. Rubinfeld, Daniel L., 1987. "The economics of the local public sector," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 11, pages 571-645 Elsevier.
    9. Inman, Robert P., 1989. "The local decision to tax : Evidence from large U.S. Cities," Regional Science and Urban Economics, Elsevier, vol. 19(3), pages 455-491, August.
    10. Moene, Karl O., 1986. "Types of bureaucratic interaction," Journal of Public Economics, Elsevier, vol. 29(3), pages 333-345, April.
    11. Jorid Kalseth & Jørn Rattsø, 1998. "Political Control of Administrative Spending: The Case of Local Governments in Norway," Economics and Politics, Wiley Blackwell, vol. 10(1), pages 63-83, March.
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    Keywords

    cost control; user charges; sponsor-bureau model; utility service;

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