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Cost Recovery, Efficiency, and Economic Organization for Water Utilities

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  • Loehman Edna T.

    (Purdue University)

Abstract

This paper describes a new method of utility pricing - Variable Unit Pricing (VUP) - that results in both economic efficiency and cost recovery for a variety of supply situations faced by water utilities. The main advantage of VUP - compared to Increasing Block Rates - is that its parameters can be objectively determined from demand and cost information.The theoretical support for VUP is a welfare economics paradigm that integrates pricing with economic organization. VUP is shown to achieve social efficiency for a fixed-fee contractual arrangement between a profit-maximizing water utility and a public agency.Public involvement is required to express equity concerns, demand for public goods such as water quality and security, and to identify appropriate supply limits for conservation.

Suggested Citation

  • Loehman Edna T., 2004. "Cost Recovery, Efficiency, and Economic Organization for Water Utilities," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-44, September.
    • Handle: RePEc:bpj:bejeap:v:contributions.3:y:2004:i:1:n:16
    DOI: 10.2202/1538-0645.1232
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    Cited by:

    1. Ramón Barberán & Fernando Arbués, 2009. "Equity in Domestic Water Rates Design," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(10), pages 2101-2118, August.

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