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Optimal Water Metering and Pricing

  • Andrés Chambouleyron

    (IERAL - Fundación Mediterránea)

Marginal cost pricing of running water and sewerage services has long been the default recommendation of economists and natural resource specialists to firms and local governments. However, water pricing has never been studied simultaneously with the water metering problem before. The socially optimal number of meters crucially depends on the price of water charged by the Water Company because depending on this will be the fall in consumption and therefore in water production costs and vice versa. This paper breaks the inertia as it combines both issues in one optimization problem. Both in a centralized and in a decentralized way, the optimal number of meters is determined simultaneously with the optimal per unit water rate. The Rateable Value System (RV) (i.e. the “Status Quo” or benchmark regime) is confronted with Universal Metering (UM), Optimal Metering (OM) and Decentralized Metering (DM) in terms of optimal water rates and the socially optimal number of meters. Except for RV, the results of (UM), (OM) and (DM) all recommend setting price equal to marginal cost and the optimal number of meters is hereby endogenously determined by a functional form relating water and metering costs and water demand characteristics. Conclusions and policy recommendations are drawn from the theoretical analysis.

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File URL: http://econwpa.repec.org/eps/io/papers/0301/0301013.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 0301013.

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Length: 19 pages
Date of creation: 28 Jan 2003
Date of revision:
Handle: RePEc:wpa:wuwpio:0301013
Note: Type of Document - Tex/WordPerfect/Handwritten; prepared on IBM PC - PC-TEX/UNIX Sparc TeX; to print on HP/PostScript/Franciscan monk; pages: 19 ; figures: included/request from author/draw your own
Contact details of provider: Web page: http://econwpa.repec.org

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