Efficient Water Pricing Policies as an Appropriate Municipal Revenue Source

Abstract

Marginal-cost pricing of municipal water in water-scarce regions is both an efficient way to achieve conservation goals and an efficient revenue source for municipalities. Nevertheless, marginal-cost water pricing is quite unusual and often prohibited, probably because water revenues are perceived to have an unfairly regressive incidence. To examine the validity of this perception, Census data from San Antonio, Texas, is used to estimate the income elasticity of demand for water there. This result and similar estimates elsewhere suggest that the regressivity of water revenues compares favorably with published regressivity estimates for traditional municipal revenue sources. Moreover, a form of two-part water pricing is shown capable of increasing progressivity without inefficiency. Revenue under this pricing regime is flexible, which allows authorities to meet a range of preset revenue targets, trading off neither efficiency nor fairness.

Efficiency Measurement in Spanish Local Government: The Case of Municipal Water Services

“…Specifically, the municipal population (Social1) and the tourist index (Social2) are introduced. And, it is also necessary to incorporate a divergent number of beneficiaries that can have a potentially significant effect on the water supplied like: (i) number of houses in a municipality (Social3), because, according to Hunt and Lynk (1995), this affects the number of connections that the water company must supply; (ii) average people per house (Social4) to reflect the possible effect of the use of the water for washing and cleaning (Merrifield and Collinge 1999); (iii) m 2 of greenbelts (Social5) in relation to the demand for water by the local authorities; and (iv) economic activity (Social6) because, Thanassoulis (2000aThanassoulis ( , 2000b indicates that if the water is supplied to companies, this supply comes in greater volume per customer, which implies smaller costs to the companies than the supply of identical volume of water to individuals. This leads us to consider the variable proposed as proxy, since the percentage of industrial consumption in relation to the total is lacking.…”

“…About socioeconomic variables and according to Merrifield and Collinge (1999), one of the most influential variables in water supply is the level of customers’ income, since the domestic consumption of water varies with the income per capita. The variable level of income ( Social10 ) is used in this work to represent the possible relation.…”

Book Review: Freudenburg, W., Gramling, R., Laska, S., & Erikson, K. (2009). Catastrophe in the Making: The Engineering of Katrina and the Disasters of Tomorrow. Washington, DC: Island Press

“…There are better alternatives, which a book of this sort should be talking about (e.g., Merrifield & Collinge, 1999, which is currently being contemplated for implementation in the Purissima Hills Water District in California). In short, this book lacks the proper economic framework for evaluating alternative policies.…”