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Valuing water for Chinese industries: a marginal productivity assessment

Hua Wang () and Somik Lall

No 2236, Policy Research Working Paper Series from The World Bank

Abstract: Using plant-level data on more than 1000 Chinese industrial plants, the authors estimate a production function treating capital, labor, water, and raw material as inputs to industrial production. They then estimate the marginal productivity of water based on the estimated production function. Using the marginal productivity approach to valuing water for industrial use, they also derive a model and estimates for the price elasticity of water use by Chinese industries. Previous studies used water demand functions and total cost functions to estimate firms'willingness to pay for water use. They find that the marginal productivity of water varies among sectors in China, with an industry average of 2.5 yuan per cubic meter of water. The average price elasticity of industrial water demand is about -1.0, suggesting a great potential for the Chinese government to use pricing policies to encourage water conservation in the industrial sector. Increasing water prices would reduce water use substantially.

Keywords: WaterConservation; Environmental Economics&Policies; Decentralization; Water and Industry; Economic Theory&Research; Water and Industry; Water Supply and Sanitation Governance and Institutions; Town Water Supply and Sanitation; Environmental Economics&Policies; Water Conservation (search for similar items in EconPapers)
Date: 1999-11-30
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