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The Efficiency And Equity Implications Of Perth’S Inclining Block Urban Water Tariffs

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  • Brennan, Donna C.

Abstract

Inclining block tariffs, where the unit price is dependent on the volume consumed, are widely used in urban water pricing. These tariffs attempt to satisfy both efficiency and equity goals by providing pricing signals to influence consumption decisions at the margin, whilst making non-discretionary consumption available at a lower cost. In practice, heterogeneity in demand and the water utility’s requirement for cost recovery lead to efficiency and equity trade offs in the design of inclining block tariff schedules. An equilibrium displacement model of Perth residential water demand, which differentiates between consumer groups according to household size and outdoor use characteristics, is used to assess the efficiency and equity implications of the inclining block tariffs charged by the Water Corporation in Western Australia. Alternative pricing options, including a modified inclining block proposal that has recently been recommended by the state economic regulator and an efficient uniform price, are also evaluated. The efficiency costs and income distributional consequences of “over generous” inclining block tariffs are demonstrated.

Suggested Citation

  • Brennan, Donna C., 2006. "The Efficiency And Equity Implications Of Perth’S Inclining Block Urban Water Tariffs," 2006 Conference (50th), February 8-10, 2006, Sydney, Australia 174095, Australian Agricultural and Resource Economics Society.
    • Handle: RePEc:ags:aare06:174095
    DOI: 10.22004/ag.econ.174095
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    Cited by:

    1. Liang Lu & David Deller & Morten Hviid, 2018. "Price and Behavioural Signals to Encourage Household Water Conservation in Temperate Climates," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2018-01, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Hughes, Neal & Hafi, Ahmed & Goesch, Tim & Brownlowe, Nathan, 2008. "Urban water management: optimal price and investment policy under uncertainty," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 6005, Australian Agricultural and Resource Economics Society.
    3. Liang Lu & David Deller & Morten Hviid, 2019. "Price and Behavioural Signals to Encourage Household Water Conservation: Implications for the UK," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 33(2), pages 475-491, January.
    4. Hughes, Neal & Hafi, Ahmed & Goesch, Tim, 2009. "Urban water management: optimal price and investment policy under climate variability," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 53(2), pages 1-18.

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