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Distributional effects of water tariff reforms: An empirical study for Lima, Peru

  • Barde, Julia Alexa
  • Lehmann, Paul

This study analyzes the affordability and distributional implications of water tariff reforms for poor water customers under means-tested tariffs in comparison to increasing block tariffs (IBTs) using volumetric targeting. For this purpose, we employ a unique data set for Lima, Peru. Our analysis reveals that from a pro-poor perspective, the performance of means-tested tariffs is mixed. On the one hand, they distribute more income to poor households than the IBTs, given the assumption that the overall revenue to the water supplier remains constant. On the other hand, the share of poor customers who actually benefit from water subsidies declines with means-testing. Nevertheless, means-tested tariffs clearly outperform IBTs in terms of excluding non-poor customers from being subsidized. These findings should be generalized with care as the performance of the tariff crucially depends on the cut-off value for cross-subsidies and the block prices chosen under volumetric targeting and on the design of the means-test. Our analysis further suggests that a proper assessment of individual welfare effects should take household size into account and rest on a broad set of affordability and distributional indicators. Interestingly, our results are relatively insensitive to the price elasticity of water demand.

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Paper provided by Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS) in its series UFZ Discussion Papers with number 14/2013.

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Date of creation: 2013
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Handle: RePEc:zbw:ufzdps:142013
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  1. repec:ebl:ecbull:v:9:y:2007:i:4:p:1-7 is not listed on IDEAS
  2. 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.
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  13. Kristin Komives & Jon Halpern & Vivien Foster & Quentin Wodon & Roohi Abdullah, 2007. "Utility Subsidies as Social Transfers: An Empirical Evaluation of Targeting Performance," Development Policy Review, Overseas Development Institute, vol. 25(6), pages 659-679, November.
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  15. Diakité, Daouda & Semenov, Aggey & Thomas, Alban, 2009. "A proposal for social pricing of water supply in Côte d'Ivoire," Journal of Development Economics, Elsevier, vol. 88(2), pages 258-268, March.
  16. Piet Rietveld & Jan Rouwendal & Bert Zwart, 2000. "Block Rate Pricing of Water in Indonesia: An Analysis of Welfare Effects," Bulletin of Indonesian Economic Studies, Taylor & Francis Journals, vol. 36(3), pages 73-92.
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