Urban Water: Rationale for Demand-side Management

The focus of this paper is to concentrate on urban water issues and discuss the growing importance of demand-side management of water, though supply-side management has been the traditional tool. An attempt is made in this context to study the various methods adopted by various researchers to estimate residential demand for water and the pricing strategies adopted by various countries. The synthesis of this review of literature is that an efficient pricing strategy forms the heart of demand-side management. While pricing can be both average cost pricing as well as marginal cost pricing, it is the latter that can incorporate a scarcity value of water in the price. Again, marginal cost pricing can be either an increasing block rate or a decreasing block rate structure. Typically, an increasing block rate structure is used for goods which are scarce in supply, especially environmental or ecological goods. This not only enables the authorities to become self-sustaining in providing the service of the good, but also educates the user about the need of conservation.