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Unintended consequences of increasing block tariffs pricing policy in urban water
Author(s) -
Dahan Momi,
Nisan Udi
Publication year - 2007
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/2005wr004493
Subject(s) - engel curve , unintended consequences , economics , equity (law) , consumption (sociology) , water pricing , economies of scale , exploit , household income , scale (ratio) , econometrics , demographic economics , microeconomics , price index , water conservation , water resources , geography , social science , ecology , computer security , cartography , archaeology , sociology , political science , law , computer science , biology
We exploit a unique data set to estimate the degree of economies of scale in water consumption, controlling for the standard demand factors. We found a linear Engel curve in water consumption: each additional household member consumes the same water quantity regardless of household size, except for a single‐person household. Our evidence suggests that the increasing block tariffs (IBT) structure, which is indifferent to household size, has unintended consequences. Large households, which are also likely to be poor given the negative correlation between income and household size, are charged a higher price for water. The degree of economies of scale found here erodes the effectiveness of IBT price structure as a way to introduce an equity consideration. This implication is important in view of the global trend toward the use of IBT.