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| Author: | Ward, F. A. Pulido-Velazquez, M. |
| Title: | Incentive pricing and cost recovery at the basin scale |
| Journal: | Journal of Environmental Management
2009 : JAN, VOL. 90:1, p. 293-313 |
| Index terms: | prices costs environmental economics water supply industry supply resources models economic efficiency |
| Freeterms: | basin-scale framework incentive pricing benefits sustainability equity |
| Language: | eng |
| Abstract: | This article presents an analysis of a two-tiered water pricing system that sets a low price for subsistence needs, while charging a price equal to marginal cost, including environmental cost, for discretionary uses. It is argues this pricing arrangement can promote efficient and sustainable water use patterns, goals set by the European Water Framework Directive, while meeting subsistence needs of poor households. Based on data from the Rio Grande Basin of North America, a dynamic nonlinear program, maximizes the basin's total net economic and environmental benefits subject to several hydrological and institutional constraints as well as the supply costs, environmental costs, and resource costs are integrated in a model of a river basin's hydrology, economics, and institutions. It is compares the three programs: 1) law of the River, in which water allocations and prices are determined by rules governing water transfers; 2) marginal cost pricing, in which households pay the full marginal cost of supplying treated water; 3) two-tiered pricing, in which households' subsistence water needs are priced cheaply, while discretionary uses are priced at efficient levels. It is found to providing a general framework for formulating water pricing programs that promote economically and environmentally efficient water use programs while also addressing other policy goals. |
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