Multiple Goals Dilemma of Residential Water Pricing Policy Reform: Increasing Block Tariffs or a Uniform Tariff with Rebate?

Abstract

Water is a basic necessity and its allocation and utilization, especially pricing policies, impose various social, economic, and ecological impacts on social groups. Increasing block tariffs (IBTs) has gained popularity because it is expected to incentivize water conservation while protecting poor people benefiting from the redistribution effects because of its nonlinear tariff structure. However, it results in price distortion under certain circumstances. Researchers have also proposed an alternative practical price system and a uniform tariff with rebate (UTR), with the price level set equal to the marginal social cost and a fixed rebate allocated to the poor groups. This study proceeds with a simulation of the two pricing systems, UTR and IBTs, and empirically explores their fundamental merits and limitations. The results confirm the theoretical perspective that a water price system, compared with an optimal tariff system, simultaneously achieves multiple goals to the greatest possible extent.

Hotel Water Demand: The Impact of Changing from Linear to Increasing Block Rates

“…For example, [50] concluded that Spanish urban water tariffs do not encourage water saving for three main reasons: the fixed fee is usually excessively high, the variable fee is not sufficiently progressive, and the marginal prices are too low. Similarly, [31], analyzing the residential water price reform in a group of cities in China (from uniform to increasing block tariff), conclude that the oversized initial block and the reduced price differentiation between blocks may prevent the reform from being effective as a way to improve water use efficiency and resource conservation.…”

“…It is important to note that the new sanitation fee structure introduced in 2013 was applied equally both for residential and hotel water consumption. While in the case of residential use there is some previous evidence that concludes that the introduction of an increasing block rates system leads to lower levels of water consumption [22,[29][30][31], no such evidence is found in the case of the hotel sector consumption. This study will therefore try to provide new evidence about the effectiveness of a change in water tariff to promote a more conservative use of the resource in the hotel sector.…”

Sustainable Policy for Water Pricing in Kuwait

“…Much recent research on demand reduction through pricing, however, often adopts a standard economic approach, notably use of price and income elasticities (e.g., [18,28]). Such understanding is usually necessary, but frequently not sufficient (e.g., [5,29]). For example, prices would need to be set at levels that do not generate very strong resistance, which is not entirely an economic issue.…”

“…Recently a few observers have begun to call for a more sophisticated assessment of water pricing policies for urban areas. Simply pricing for cost recovery and/or for reducing demand may not gain desired results, because there are many non-economic aspects that must be considered, such as perceptions of fairness and equity (e.g., [5]). This research assessed WTP for water using price and two key non-monetary motivations sometimes cited (social/extrinsic and moral/intrinsic), and suggested how such information can be used in developing urban water pricing policy.…”

“…Realistic pricing can reduce excessive resource usage causing environmental harm [4]. Ma et al [5], however, point out that policies often have multiple conflicting goals, and, further, that it is quite difficult to monetize some critical considerations for inclusion in standard economic analysis. Marketization can trigger resistance unless implemented carefully (e.g., [1]).…”