Cost Recovery, Efficiency, and Economic Organization for Water Utilities

Loehman Edna T. ()
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Loehman Edna T.: Purdue University

The B.E. Journal of Economic Analysis & Policy, 2004, vol. 3, issue 1, 1-44

Abstract: This paper describes a new method of utility pricing - Variable Unit Pricing (VUP) - that results in both economic efficiency and cost recovery for a variety of supply situations faced by water utilities. The main advantage of VUP - compared to Increasing Block Rates - is that its parameters can be objectively determined from demand and cost information.The theoretical support for VUP is a welfare economics paradigm that integrates pricing with economic organization. VUP is shown to achieve social efficiency for a fixed-fee contractual arrangement between a profit-maximizing water utility and a public agency.Public involvement is required to express equity concerns, demand for public goods such as water quality and security, and to identify appropriate supply limits for conservation.

Keywords: water; public utility; nonlinear pricing; cost recovery; privatization; investment (search for similar items in EconPapers)
Date: 2004
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DOI: 10.2202/1538-0645.1232

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