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The consequences of using increasing block tariffs to price urban water
Author(s) -
Sibly Hugh,
Tooth Richard
Publication year - 2014
Publication title -
australian journal of agricultural and resource economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.683
H-Index - 49
eISSN - 1467-8489
pISSN - 1364-985X
DOI - 10.1111/1467-8489.12032
Subject(s) - economics , water supply , environmental economics , deadweight loss , mainland china , set (abstract data type) , business , microeconomics , natural resource economics , public economics , computer science , environmental science , geography , environmental engineering , china , market economy , archaeology , welfare , programming language
Increasing block tariffs ( IBT s) are currently used to price urban water in many Australian mainland capitals and a great many cities worldwide. This paper provides a systematic analysis of the impact of the adoption of IBT s to price urban water under the common constraints of scarce supply and cost recovery. The key tools available to policymakers using IBT s are the volumetric rate in the low tier and the threshold level of that tier. This paper shows how variations in these tools influence (i) the fixed charge set by the firm, (ii) the deadweight loss from the IBT and (iii) the bill paid by customers for particular levels of demand. Our analysis suggests that IBT s are neither fair nor efficient. We propose a modification to IBT s that, while retaining their perception of fairness, results in the efficient allocation of urban water.