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Efficiency and equity in two-part tariffs: the case of residential water rates

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  • Simon Porcher

Abstract

As first noticed by Coase (1946), a standard result in utility regulation is that efficiency requires two-part tariffs with marginal prices set to marginal costs and fixed fees equal to each customer' s share of fixed costs. Residential water customers in France face marginal prices for water that average about 8% more than marginal costs. Under price elasticity estimates that are consistent with previous results in the literature, efficiency costs represent around 8 million euros of welfare losses for 2008. Even though the impact is fairly small, current price schedules are an important pre-existing distortion which should be considered when evaluating current taxes aimed at addressing external costs. Moreover, efficiency gains from reformed tariffs could be used to fund water assistance programs focused on financially stressed households.

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  • Simon Porcher, 2014. "Efficiency and equity in two-part tariffs: the case of residential water rates," Applied Economics, Taylor & Francis Journals, vol. 46(5), pages 539-555, February.
    • Handle: RePEc:taf:applec:v:46:y:2014:i:5:p:539-555
    DOI: 10.1080/00036846.2013.857001
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    Cited by:

    1. Simon Porcher, 2019. "Does Contracting for the Provision of Public Services Decrease Prices? Evidence from French Water Public Services," Working Papers hal-02145863, HAL.
    2. Raphaël Homayoun Boroumand & Stéphane Goutte & Simon Porcher & Thomas Porcher, 2014. "A Conditional Markov Regime Switching Model to Study Margins: Application to the French Fuel Retail Markets," Working Papers hal-01090837, HAL.
    3. Younes Ben Zaied & Nidhaleddine Ben Cheikh & Pascal Nguyen, 2017. "Modeling nonlinear water demand : The case of Tunisia," Economics Bulletin, AccessEcon, vol. 37(2), pages 637-644.
    4. Li, Yao & Fan, Jin & Zhao, Dingtao & Wu, Yanrui & Li, Jun, 2016. "Tiered gasoline pricing: A personal carbon trading perspective," Energy Policy, Elsevier, vol. 89(C), pages 194-201.
    5. Farrell, Niall & Meles, Tensay Hadush, 2023. "The equity and efficiency of electricity network tariffs," Papers WP744, Economic and Social Research Institute (ESRI).
    6. Michael O'Donnell & Robert P. Berrens, 2018. "Understanding Falling Municipal Water Demand in a Small City Dependent on the Declining Ogallala Aquifer: Case Study of Clovis, New Mexico," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-40, October.
    7. Kenneth A. Baerenklau & María Pérez-Urdiales, 2019. "Can Allocation-Based Water Rates Promote Conservation and Increase Welfare? A California Case Study," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-26, April.
    8. Younes Ben Zaied & Marie Estelle Binet, 2015. "Modelling seasonality in residential water demand: the case of Tunisia," Applied Economics, Taylor & Francis Journals, vol. 47(19), pages 1983-1996, April.
    9. Jayanath Ananda & Nicholas Pawsey & Tahmid Nayeem, 2022. "Customer‐centric regulation: The case of Victorian urban water sector," Regulation & Governance, John Wiley & Sons, vol. 16(2), pages 536-556, April.
    10. Porcher, Simon, 2017. "The ‘hidden costs’ of water provision: New evidence from the relationship between contracting-out and price in French water public services," Utilities Policy, Elsevier, vol. 48(C), pages 166-175.
    11. Farrell, Niall, 2021. "The increasing cost of ignoring Coase: Inefficient electricity tariffs, welfare loss and welfare-reducing technological change," Energy Economics, Elsevier, vol. 97(C).
    12. Boroumand, Raphaël Homayoun & Goutte, Stéphane & Porcher, Simon & Porcher, Thomas, 2016. "Asymmetric evidence of gasoline price responses in France: A Markov-switching approach," Economic Modelling, Elsevier, vol. 52(PB), pages 467-476.
    13. Elham Erfanian & Alan R. Collins, 2018. "Charges for Water and Access: What Explains the Differences Among West Virginian Municipalities?," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-27, October.
    14. Gong, Chengzhu & Tang, Kai & Zhu, Kejun & Hailu, Atakelty, 2016. "An optimal time-of-use pricing for urban gas: A study with a multi-agent evolutionary game-theoretic perspective," Applied Energy, Elsevier, vol. 163(C), pages 283-294.
    15. Simon Porcher & Alexandros Maziotis & Maria Molinos-Senante, 2017. "The welfare costs of non-marginal water pricing: evidence from the water only companies in England and Wales," Post-Print hal-02145826, HAL.
    16. Farrell, Niall, 2023. "Calculating efficient Distribution use of System (DUoS) charges for Ireland: Indicative tariffs for residential, commercial and industrial consumers," Papers WP743, Economic and Social Research Institute (ESRI).
    17. Simon Porcher, 2019. "Water Taxes and Consumer Behavior in France," Working Papers hal-02145848, HAL.
    18. Fuente, David, 2019. "The design and evaluation of water tariffs: A systematic review," Utilities Policy, Elsevier, vol. 61(C).
    19. Evans, Olaniyi, 2019. "The effects of US-China trade war and Trumponomics," MPRA Paper 93682, University Library of Munich, Germany.
    20. Farrell, Niall & Humes, Harry, 2022. "Diminishing deadweight loss through energy subsidy cost recovery," Papers WP727, Economic and Social Research Institute (ESRI).
    21. Bouchrika Ali & Issaoui Fakhri & Hamid Abdelkader Bachouche, 2024. "How to Manage the Naturel Resources Pricing in the Sustainability Context: Application to Drinking Water," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 38(11), pages 4307-4321, September.
    22. Francisco Silva Pinto & Rui Cunha Marques, 2016. "Tariff Suitability Framework for Water Supply Services," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 30(6), pages 2037-2053, April.

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