Desperately Seeking Theta's: Estimating the Distribution of Consumers under Increasing Block Rates

Fidel Castro-Rodriguez, Jose Maria Da-Rocha and Pedro Delicado
Authors registered in the RePEc Author Service: Jose Maria Da Rocha

Journal of Regulatory Economics, 2002, vol. 22, issue 1, 29-58

Abstract: This paper shows that increasing block rate pricing schedules usually applied by water utilities can reduce the efficiency and equity levels. To do this, we first present a two step method to estimate the demand and to recover the distribution of consumer tastes when increasing block rate pricing is used. We show that in this case the tariff induces a pooling equilibrium and customers with different taste parameters will be observed to choose the same consumption level. Second, we show that a two-part tariff that neither reduces the revenue for the firm nor increases the aggregate level of water consumption increases the welfare and equity levels in relation to an increasing block rates schedule. Copyright 2002 by Kluwer Academic Publishers

Date: 2002
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Citations: View citations in EconPapers (11)

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