Revenue neutral water conservation: Marginal cost pricing with discount coupons

Abstract

This paper points out how a system of marketable discount coupons applied to the sale of water by an agency can satisfy both redistributional and revenue constraints without compromise to economic efficiency, in effect 'creating marketable multipart pricing. This procedure achieves marginal cost pricing for each user while decreasing the average consumer's expenditures on water. Efficiency would obtain both in allocation among users and in overall usage. No information on consumer demand for water is requ!red. A useful by-product is market revelation of the marginal value of incremental water usage, thereby also shedding light on the value of incremental water projects.Policymakers "must find a way to make water rights secure and transferable." (T. L. Anderson and D. R. Leal, 1989, p. 432) "We want to raise prices but not kill the consumer. We don't want to bring him to his knees !" (L. Abalkin as quoted by P. Gumbel, 1990, p. A14) 1. INTRODUCTION Redistributional impacts and state constitutions often prevent m.unicipalities from using water as a source of net revenues. The regulting average cost pricing of water usage is particularly inefficient in areas with water supply problems {high marginal. replacement costs), and leads to excessive use of existing water supplies, shortages, and costly supplemental water projects. This paper proposes a solution to the trade-off between efficiency and equity in the pricing of water. Specifically, this paper points out an alternative to exhorting public officials to "bite the bullet" and drastically raise the price per unit of publicly provided water [e.g., Feldman, 1981; Brown and McGuire, 1984; Kucewicz, 199•1] or forgo most potential efficiency gains for the sake of political acceptability [e.g., Dandy et al., 1984].The paper proposes a "discount coupon system" (DCS), which is a technique to price water efficiently at the margin for each consumer while at the same time meet independently set revenue goals (such as zero revenues in excess of costs). The administering agency requires no information regarding consumer demand; information on the cost of

Water Pricing Models: a survey

“…The questions addressed are varied and numerous. Hirshleifer et al, 1960Ryordan, 1971Dandy et al, 1984Zarnikau, 1994Chambouleyron, 2003 Seasonal or temporal variations Gisy and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Dandy et al, 1984Zarnikau, 1994Elnaboulsi, 2001Schuck and Green, 2002 Capacity constraints or expansion decisions (Peak-load pricing) Hirshleifer et al, 1960Ryordan, 1971Gysi and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Zarnikau, 1994Elnaboulsi, 2001 Griffin, 2001 Scarcity Moncur and Pollock, 1988Zarnikau, 1994Elnaboulsi, 2001Griffin, 2001Schuck and Green, 2002 Revenue requirements Hirshleifer et al, 1960Freedman, 1986Collinge, 1992Zarnikau, 1994Kim, 1995Griffin, 2001Schuck and Green, 2002 Optimal number of metered connections Barrett and Sinclair, 1999Griffin, 2001Chambouleyron, 2003 Efficiency of block tariffs Gisy andLoucks, 1971 Elnaboulsi, 2001 Second-best pricing Kim, 1995Elnaboulsi, 2001Schuck and Green, 2002 Optimal derivation of nonlinear pricing schemes Elnaboulsi, 2001 Customer heterogeneity ...…”

A Fair Contract for Managing Water Scarcity

“…The first theorem of welfare economics states that competitive equilibrium is always Pareto efficient (Varian 1992). Collinge (1992), Lund andReed (1995), andHaddad (2000) use the concept of tradeable water rights in water markets; with the price of water rights as a signal to ensure conservation. However, the concept of water markets is applicable for managing natural water for wholesale consumers and its applicability for retail consumers is limited (Griffin 2006).…”

Water pricing Models: A Survey

“…Table 1 sums up the main ones and the papers that deal with each one. Hirshleifer et al, 1960Ryordan, 1971Dandy et al, 1984Zarnikau, 1994Chambouleyron, 2003 Seasonal or temporal variations Gisy and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Dandy et al, 1984Zarnikau, 1994Elnaboulsi, 2001Schuck and Green, 2002 Capacity constraints or expansion decisions (Peak-load pricing) Hirshleifer et al, 1960Ryordan, 1971Gysi and Loucks, 1971Riley and Scherer, 1979Manning and Gallagher, 1982Zarnikau, 1994Elnaboulsi, 2001 Griffin, 2001 Scarcity Moncur and Pollock, 1988Zarnikau, 1994Elnaboulsi, 2001Griffin, 2001Schuck and Green, 2002 Revenue requirements Hirshleifer et al, 1960Freedman, 1986Collinge, 1992Zarnikau, 1994Kim, 1995Griffin, 2001Schuck and Green, 2002 Optimal number of metered connections Barrett and Sinclair, 1999Griffin, 2001Chambouleyron, 2003 Efficiency of block tariffs Gisy andLoucks, 1971 Elnaboulsi, 2001 Second-best pricing Kim, 1995Elnaboulsi, 2001Schuck and Green, 2002 Optimal derivation of nonlinear pricing schemes Elnaboulsi, 2001...…”