Pricing for Scarcity
In many areas where water is not abundant, water pricing schedules contain significant nonlinearities. Existing pricing literature establishes that efficient schedules will depend on demand and supply characteristics. However, most empirical studies show that actual pricing schemes have little to do with theoretical efficiency results. In particular, there are very few models recommending increasing blocks, whereas we present evidence that this type of tariff structure is abundantly used. Water managers often defend increasing blocks, both as a means to benefit smaller users and as a way to signal scarcity. Naturally, in the presence of water scarcity the true cost of water increases due to the emergence of a scarcity cost. In this paper, we incorporate the scarcity cost associated with insufficient water availability into the optimal tariff design in several different models. We show that when both demand and costs respond to climate factors, increasing marginal prices may come about as a combined result of scarcity and customer heterogeneity under specific conditions. We also investigate the effect that rising water scarcity in the long run can have on the steady-state amount of capital invested in water storage and supply infrastructures and obtain some results that are consistent with the static models.
|Date of creation:||Jun 2008|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schuck, Eric C. & Green, Gareth P., 2002. "Supply-based water pricing in a conjunctive use system: implications for resource and energy use," Resource and Energy Economics, Elsevier, vol. 24(3), pages 175-192, June.
- Mark Hoffmann & Andrew Worthington & Helen Higgs, 2006.
"Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia ,"
Australian Journal of Agricultural and Resource Economics,
Australian Agricultural and Resource Economics Society, vol. 50(3), pages 347-359, 09.
- Hoffmann, Mark & Worthington, Andrew & Higgs, Helen, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), September.
- J. Elnaboulsi, 2001.
"Nonlinear Pricing and Capacity Planning for Water and Wastewater Services,"
Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA),
Springer;European Water Resources Association (EWRA), vol. 15(1), pages 55-69, February.
- Jihad Elnaboulsi, 2001. "Nonlinear pricing and capacity planning for water and wastewater services," Post-Print hal-00447925, HAL.
- Monteiro, Henrique & Roseta-Palma, Catarina, 2007.
"Caracterização dos tarifários de abastecimento de água e saneamento em Portugal
[Portuguese Water Supply and Sewage Tariffs Report]," MPRA Paper 4238, University Library of Munich, Germany.
- Henrique Monteiro, 2005. "Water Pricing Models: a survey," Others 0510002, EconWPA.
- Anne Briand, 2006. "Marginal Cost Versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water," Working Papers 2006.144, Fondazione Eni Enrico Mattei.
- Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, September.
- James E. T. Moncur & Richard L. Pollock, 1988. "Scarcity Rents for Water: A Valuation and Pricing Model," Land Economics, University of Wisconsin Press, vol. 64(1), pages 62-72.
- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, December.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10384. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.