Welfare and Distribution Effects of Water Pricing Policies

Arjan Ruijs
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Arjan Ruijs: Wageningen University

No 2007.92, Working Papers from Fondazione Eni Enrico Mattei

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: Water Demand; Welfare Economics; Equivalent Variation (search for similar items in EconPapers)
JEL-codes: D63 Q25 Q56 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2007.92

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