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Welfare and Distribution Effects of Water Pricing Policies

Arjan Ruijs

No 7441, Natural Resources Management Working Papers from Fondazione Eni Enrico Mattei (FEEM)

Abstract: In this paper, distribution and welfare effects of changes in block price systems are evaluated. A method is discussed to determine, for a Marshallian demand function, equivalent variation in case of a block price system. The method is applied to analyze welfare and distribution effects of changing water prices in the Metropolitan Region of São Paulo. Results show that there is a trade off between average welfare and income distribution. A pro-poor price system may result in lower average welfare than a flat price system, but in higher individual welfare for the poor. Moreover, there is a trade off between revenues for the water company and income distribution. Even though pro-poor price systems may not be as good for average welfare as flat price systems, their direct effects on poverty are important. Introducing pro-poor price systems, however, may have financial consequences for the water companies.

Keywords: Food Security and Poverty; Resource /Energy Economics and Policy (search for similar items in EconPapers)
Pages: 28
Date: 2007
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:feemnr:7441

DOI: 10.22004/ag.econ.7441

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