Marginal cost and second-best pricing for water services

Kim, H. Youn

doi:10.1007/bf01027078

Cited by 41 publications

(27 citation statements)

References 7 publications

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“…His findings suggest that prices charged to residential customers are too low that they amount to only one third of the estimated marginal cost for water supply. Kim (1995) investigated the U.S water utilities by regarding the utilities as multi-product firm for "residential" and "non-residential" services and examined the pricing strategy of water services relative to marginal cost and second-best pricing. Results confirmed that the pricing structure and the marginal cost are quite different while the second best optimum is quite close to the then existing pricing structure.…”

Section: Zef Discussion Papers On Development Policy 129 6 2 Previousmentioning

confidence: 99%

“…Furthermore, it does not require a priori the assumptions of homotheticity, separability, neutrality, constant returns to scale or unitary elasticities of substitution. In this study, following many other studies (Christensen and Greene, 1976;Babin et al, 1982;Renzetti, 1992;Kim, 1995;Fabbri and Fraquelli, 2000;Garcia and Thomas, 2001), the translog cost function is employed.…”

Section: Zef Discussion Papers On Development Policy 129 8 3 Theoretimentioning

confidence: 99%

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Economic Analysis of Water Supply Cost Structure in the Middle Olifants Sub-Basin of South Africa

Tsegai

Linz²,

Kloos³

2009

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Economic analysis of water supply cost structure in the Middle Olifants sub-basin of South Africa Terms of use: Documents in List of Figures AbstractUsing data gathered from the National Treasury of South Africa, we examine the structure of water supply costs and tariffs of Water Service Authorities (WSAs) in the Middle Olifants sub-basin of South Africa. Using the translog cost function method, the marginal cost of water supply and economies of scale are estimated. Comparison of tariffs and marginal costs show that the estimated marginal cost is higher than the actual tariff paid by consumers. This implies that WSAs in the Middle Olifants are not charging enough to recover the costs of the water services. Thus, among other things, pricing of water at its marginal cost would partly assist in solving the cost recovery problem. Raised tariffs would in turn contribute to improved efficiency of water use. As evidenced by estimation results of returns to scale (greater than one), merger of WSAs would be economically advantageous. Hence, reversing the process of transferring water services' authority to 'local' municipality level and thus up-scaling WSAs into the 'district' municipality level is an important policy option for improving water services efficiency in the Middle Olifants sub-basin of South Africa.

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Section: Zef Discussion Papers On Development Policy 129 6 2 Previousmentioning

confidence: 99%

Section: Zef Discussion Papers On Development Policy 129 8 3 Theoretimentioning

confidence: 99%

Economic Analysis of Water Supply Cost Structure in the Middle Olifants Sub-Basin of South Africa

Tsegai

Linz²,

Kloos³

2009

SSRN Journal

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“…The questions addressed are varied and numerous. Hirshleifer et al, 1960Ryordan, 1971Dandy et al, 1984Zarnikau, 1994Chambouleyron, 2003 Seasonal or temporal variations Gisy and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Dandy et al, 1984Zarnikau, 1994Elnaboulsi, 2001Schuck and Green, 2002 Capacity constraints or expansion decisions (Peak-load pricing) Hirshleifer et al, 1960Ryordan, 1971Gysi and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Zarnikau, 1994Elnaboulsi, 2001 Griffin, 2001 Scarcity Moncur and Pollock, 1988Zarnikau, 1994Elnaboulsi, 2001Griffin, 2001Schuck and Green, 2002 Revenue requirements Hirshleifer et al, 1960Freedman, 1986Collinge, 1992Zarnikau, 1994Kim, 1995Griffin, 2001Schuck and Green, 2002 Optimal number of metered connections Barrett and Sinclair, 1999Griffin, 2001Chambouleyron, 2003 Efficiency of block tariffs Gisy andLoucks, 1971 Elnaboulsi, 2001 Second-best pricing Kim, 1995Elnaboulsi, 2001Schuck and Green, 2002 Optimal derivation of nonlinear pricing schemes Elnaboulsi, 2001 Customer heterogeneity ...…”

Section: Water Pricing Modelsmentioning

confidence: 99%

Water Pricing Models: a survey

Monteiro¹

2005

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This paper surveys water pricing models, highlighting some important results. Efficiency requires marginal cost pricing. Intra-annual price changes or customer differentiation to reflect differences in marginal costs can enhance efficiency. A marginal cost pricing mechanism may signal the value that consumers attribute to further capacity expansions as the water supply system approaches its capacity limit and marginal cost rises. However, pure marginal cost pricing may not be feasible while respecting a revenue requirement because marginal costs may be higher or lower than average costs. The most common ways of combining efficiency and revenue requirements are through the use of two-part tariffs, adjusting the fixed charge to meet the revenue requirement, or through second-best pricing like Ramsey pricing. It is not evident whether the best scheme is a two-part tariff or some other pricing mechanism. The role of block rate pricing, increasingly more frequent in actual pricing practices, is yet to be fully investigated.Keywords: water pricing models; capacity constraints; scarcity; revenue requirements; secondbest pricing; block rate pricing JEL Classification: L95, Q25.

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“…Three main specific purposes can be found in the relevant empirical literature. One is to evaluate price schemes and to design optimal prices (Garcia-Valiñas, 2005;Garcia and Reynaud, 2004;Kim, 1995;Renzetti, 1992). Another is to analyse the effects of ownership and regulation on utility performance (Saal and Parker, 2000;Bhattacharyya et al, 1995;Feigenbaum and Teeples, 1983).…”

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confidence: 99%

Water losses and hydrographical regions influence on the cost structure of the Portuguese water industry

2011

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There is a consensus that the emphasis on the management of water resources should be put on demand side policies. However, some questions remain to be solved on the supply side, which are frequently absent from empirical studies based on the estimation of cost functions. This paper aims to fill to some extent this gap in the literature by focusing the consequences of water losses reduction and the management of water resources based on their availability at an integrated river basin level.Major findings indicate that it would be better in terms of costs to maintain some level of water losses than to repair the leaks and suggest advantages from more concentration in the Portuguese water industry. In addition, the costs do not seem to be systematically influenced by the hydrographical regions to which water utilities belong, what might be due to the absence of appropriate cost accounting methods.JEL Classification: L11, L95, Q25

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Marginal cost and second-best pricing for water services

Abstract: Marginal costs, second-best (ramsey) pricing, translog multiproduct cost function,

Cited by 41 publications

References 7 publications

Economic Analysis of Water Supply Cost Structure in the Middle Olifants Sub-Basin of South Africa

Economic Analysis of Water Supply Cost Structure in the Middle Olifants Sub-Basin of South Africa

Water Pricing Models: a survey

Water losses and hydrographical regions influence on the cost structure of the Portuguese water industry

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