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Increasing Block Tariffs in the Water Sector: A Semi-Welfarist Approach

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  • Georg Meran
  • Christian von Hirschhausen

Abstract

We analyze the properties of progressive water tariffs that are often applied in the sector in the form of discretely increasing block tariffs (IBT). We are particularly interested in water tarification in a poverty context where a subsistence level of water has to be allocated to each household. Our approach is "semi-welfarist" to the extent that we analyze second-best pricing schemes that may be applied in practice due to "fairness" or other, non-welfarist considerations. In our theoretical model we compare a modified Coase-tariff and a progressively increasing block tariff with respect to water consumption, water expenses and utility levels. When we impose cost coverage on the water utility, there are clearly adverse effects on the "almost poor" by introducing a progressive tariff. This result is supported with a numerical application using real data from Bangladesh: progressive tariffs may fail to achieve "fair" cross-subsidization of low-income groups.

Suggested Citation

  • Georg Meran & Christian von Hirschhausen, 2009. "Increasing Block Tariffs in the Water Sector: A Semi-Welfarist Approach," Discussion Papers of DIW Berlin 902, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp902
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    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.99475.de/dp902.pdf
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    Cited by:

    1. repec:eee:enepol:v:109:y:2017:i:c:p:208-217 is not listed on IDEAS
    2. 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).
    3. Lin, Boqiang & Jiang, Zhujun, 2012. "Designation and influence of household increasing block electricity tariffs in China," Energy Policy, Elsevier, vol. 42(C), pages 164-173.
    4. Georg Meran, 2012. "Europäische Preisregulierungssysteme in der Wasserwirtschaft: Konzepte und Umsetzungsprobleme," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 81(1), pages 167-181.

    More about this item

    Keywords

    water; tarification; prices; fairness; distribution; institutions;

    JEL classification:

    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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