Optimal Pricing of a New Utility Service: The Case of Piped Water in Vietnam

Quy-Toan Do and Hanan G Jacoby

The Review of Economic Studies, 2025, vol. 92, issue 3, 1773-1800

Abstract: As utility services expand throughout the developing world, providers must grapple with how to set prices to recover average costs. Data from a multiyear randomised pricing experiment among nearly 1,500 recently connected piped water customers in Vietnam reveal month-to-month demand persistence. Based on structural demand estimation, we document how endogenous preferences, if unaccounted for, can lead to low take-up and thereby threaten the financial viability of the new water utility. We also show that such demand persistence calls for pricing schemes that defer lump-sum payment, effectively allowing future consumers to subsidise their present selves.

Keywords: Endogenous preferences; Two-part tariffs; Willingness-to-pay (search for similar items in EconPapers)
Date: 2025
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