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Desperately Seeking Theta's: Estimating the Distribution of Consumers under Increasing Block Rates

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  • Castro-Rodriguez, Fidel
  • Da-Rocha, Jose Maria
  • Delicado, Pedro

Abstract

This paper shows that increasing block rate pricing schedules usually applied by water utilities can reduce the efficiency and equity levels. To do this, we first present a two step method to estimate the demand and to recover the distribution of consumer tastes when increasing block rate pricing is used. We show that in this case the tariff induces a pooling equilibrium and customers with different taste parameters will be observed to choose the same consumption level. Second, we show that a two-part tariff that neither reduces the revenue for the firm nor increases the aggregate level of water consumption increases the welfare and equity levels in relation to an increasing block rates schedule. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Castro-Rodriguez, Fidel & Da-Rocha, Jose Maria & Delicado, Pedro, 2002. "Desperately Seeking Theta's: Estimating the Distribution of Consumers under Increasing Block Rates," Journal of Regulatory Economics, Springer, vol. 22(1), pages 29-58, July.
    • Handle: RePEc:kap:regeco:v:22:y:2002:i:1:p:29-58
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    Cited by:

    1. Pinto, Francisco Silva & Marques, Rui Cuhna, 2015. "Tariff recommendations: A Panacea for the Portuguese water sector?," Utilities Policy, Elsevier, vol. 34(C), pages 36-44.
    2. María A. García-Valiñas, 2018. "Spain," Post-Print hal-03191536, HAL.
    3. María Angeles García Valiñas, 2005. "Promotion and remuneration of university professors: from the LRU to the COU," Hacienda Pública Española / Review of Public Economics, IEF, vol. 172(1), pages 119-143, June.
    4. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    5. María Angeles García Valiñas, 2004. "Eficiencia y equidad en el diseño de precios óptimos para bienes y servicios públicos," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 95-119, march.
    6. Arbues, Fernando & Garcia-Valinas, Maria Angeles & Martinez-Espineira, Roberto, 2003. "Estimation of residential water demand: a state-of-the-art review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(1), pages 81-102, March.
    7. Maria A. García-Valiñas & Roberto Martínez-Francisco & González-Gómez, 2010. "Water affordability: alternativem measurement and explanatory Factors in Andalusia," Centre for Water Economics, Environment and Policy Papers 1014, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.
    8. Rita Martins & Carlota Quintal & Eduardo Barata & Luís Cruz, 2010. "Water Pricing and Social Equity in Portuguese Municipalities," GEMF Working Papers 2010-17, GEMF, Faculty of Economics, University of Coimbra.
    9. Rita Martins & Luis Cruz & Eduardo Barata, 2013. "Water Price Regulation: A Review of Portuguese Tariff Recommendations," Public Organization Review, Springer, vol. 13(2), pages 197-205, June.
    10. Ming-Feng Hung & Bin-Tzong Chie & Huei-Chu Liao, 2020. "A Comparison of Electricity-Pricing Programs: Economic Efficiency, Cost Recovery, and Income Distribution," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 56(1), pages 143-163, February.
    11. Maria A. García‐Valiñas & Roberto Martínez‐Espiñeira & Francisco González‐Gómez, 2010. "Economics of Water Reform in the Murray-Darling Basin," Centre for Water Economics, Environment and Policy Papers 1005, Centre for Water Economics, Environment and Policy, Crawford School of Public Policy, The Australian National University.

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