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Water Pricing Models: a survey

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  • Henrique Monteiro

    (Department of Economics & Dinâmia – ISCTE)

Abstract

This paper surveys water pricing models, highlighting some important results. Efficiency rquires marginal cost pricing. Intra-annual price changes or customer differentiation to reflect differences in marginal costs can enhance efficiency. A marginal cost pricing mechanism may signal the value that consumers attribute to further capacity expansions as the water supply system approaches its capacity limit and marginal cost rises. However, pure marginal cost pricing may not be feasible while respecting a revenue requirement because marginal costs may be higher or lower than average costs. The most common ways of combining efficiency and revenue requirements are through the use of two-part tariffs, adjusting the fixed charge to meet the revenue requirement, or through second-best pricing like Ramsey pricing. It is not evident whether the best scheme is a two-part tariff or some other pricing mechanism. The role of block rate pricing, increasingly more frequent in actual pricing practices, is yet to be fully investigated.

Suggested Citation

  • Henrique Monteiro, 2005. "Water Pricing Models: a survey," Others 0510002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpot:0510002
    Note: Type of Document - pdf; pages: 16. DINÂMIA - Research Centre for Socioeconomic Change Working Paper n. 45
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/othr/papers/0510/0510002.pdf
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    References listed on IDEAS

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    Cited by:

    1. Vladimir PoluyanovVP & Nataliia Palamarchuk, 2017. "Integrated Assessment of the Policy of Working Capital Management in Housing and Utilities Enterprises," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(2), pages 489-499.
    2. Eduardo Roca & Gurudeo Anand Tularam, 2012. "Which way does water flow? An econometric analysis of the global price integration of water stocks," Applied Economics, Taylor & Francis Journals, vol. 44(23), pages 2935-2944, August.
    3. 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.
    4. Roseta-Palma, Catarina & Monteiro, Henrique, 2008. "Pricing for Scarcity," MPRA Paper 10384, University Library of Munich, Germany.
    5. Rita Martins & Carlota Quintal & Ana Pimentel, 2009. "Equidade: a chave para explicar os tarifários de água em Portugal?," Notas Económicas, Faculty of Economics, University of Coimbra, issue 29, pages 41-53, June.

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    More about this item

    Keywords

    water pricing models; capacity constraints; scarcity; revenue requirements; second-best pricing; block rate pricing;
    All these keywords.

    JEL classification:

    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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