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Water Pricing Models: a survey

Author

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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, EconWPA.
  • 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: http://econwpa.repec.org/eps/othr/papers/0510/0510002.pdf
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    References listed on IDEAS

    as
    1. Barrett, R. & Sinclair, P., 1999. "Water Charges and the Cost of Metering," Discussion Papers 99-05, Department of Economics, University of Birmingham.
    2. Brown,Stephen J. & Sibley,David Sumner, 1986. "The Theory of Public Utility Pricing," Cambridge Books, Cambridge University Press, number 9780521314008, March.
    3. Andrés Chambouleyron, 2003. "Optimal Water Metering and Pricing," Industrial Organization 0301013, EconWPA.
    4. Garcia, Serge & Reynaud, Arnaud, 2004. "Estimating the benefits of efficient water pricing in France," Resource and Energy Economics, Elsevier, vol. 26(1), pages 1-25, March.
    5. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Roseta-Palma, Catarina & Monteiro, Henrique, 2008. "Pricing for Scarcity," MPRA Paper 10384, University Library of Munich, Germany.
    2. repec:ura:ecregj:v:1:y:2017:i:2:p:489-499 is not listed on IDEAS
    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. 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.

    More about this item

    Keywords

    water pricing models; capacity constraints; scarcity; revenue requirements; second-best pricing; block rate pricing;

    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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