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Welfare Effects of Water Pricing in Germany

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  • Christopher Müller

    (Department of Regional and Environmental Planning, University of Kaiserslautern, Pfaffenbergstraße 95, D-67663 Kaiserslautern, Germany)

Abstract

The observed two-part tariff price structure (consisting of a lump-sum price and linear marginal price) for drinking water in Germany does not reflect the cost structure reported in the literature. Recovering marginal costs from a sample of 251 German counties, we see that there are positive price-cost margins, while lump-sum prices are too low. A price structure readjustment along welfare economic principles (marginal cost pricing, lump-sum price ensures cost-recovery) would increase the mean consumer surplus by 0.037% of the local GDP or €2.129 million per county, assuming a share of 15% variable costs in total costs.

Suggested Citation

  • Christopher Müller, 2015. "Welfare Effects of Water Pricing in Germany," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 1(04), pages 1-25, December.
    • Handle: RePEc:wsi:wepxxx:v:01:y:2015:i:04:n:s2382624x15500198
    DOI: 10.1142/S2382624X15500198
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    References listed on IDEAS

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    3. Olmstead, Sheila M., 2009. "Reduced-Form Versus Structural Models of Water Demand Under Nonlinear Prices," Journal of Business & Economic Statistics, American Statistical Association, vol. 27, pages 84-94.
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    6. Johann Wackerbauer, 2003. "Regulierungsmodelle für die öffentliche Wasserversorgung und ihre Wettbewerbseffekte," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 56(21), pages 9-16, November.
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    Cited by:

    1. Joachim Schleich & Thomas Hillenbrand, 2019. "Residential water demand responds asymmetrically to rising and falling prices," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4973-4981, September.
    2. 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.

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    More about this item

    Keywords

    Residential water demand; welfare measurement; public water supply; equity-efficiency trade-off; natural monopoly; public services;
    All these keywords.

    JEL classification:

    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • O25 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Industrial Policy
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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