A socially efficient water tariff under the English optional metering scheme

Ueda, Tatsuki and Moffatt, Peter (2013) A socially efficient water tariff under the English optional metering scheme. Environmental and Resource Economics, 54 (4). pp. 495-523. ISSN 0924-6460

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Abstract

We design a socially-efficient water tariff in the institutional context of England, where water metering is largely optional and non-metered households are levied proportional to the rateable value (RV) of their property. Within this context, it is theoretically demonstrated that: the larger the RV, the more likely the household to opt for metering; and the larger the RV, the smaller the Demand Effect of Metering (DEM; the fall in water consumption resulting from metering). These two hypotheses are confirmed with econometric analyses using datasets provided by a water company operating in East Anglia, England. The results signify an adverse-selection problem: wealthier households are more likely to opt for metering, yet they are expected to exhibit a smaller DEM once a meter is installed. In order to overcome this, we propose a two-part tariff for metered households consisting of: a variable charge levied proportional to water consumption at a uniform price; and a progressive standing charge to place a heavier burden on wealthier households. The latter component has a potentially major role in attaining social efficiency of metering, by encouraging poorer households to install meters whilst discouraging wealthier ones. The optimal two-part tariff is determined empirically

Item Type: Article
Faculty \ School: Faculty of Social Sciences > School of Economics
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Depositing User: Julie Frith
Date Deposited: 18 Jan 2013 10:24
Last Modified: 24 Oct 2018 12:30
URI: https://ueaeprints.uea.ac.uk/id/eprint/40839
DOI: 10.1007/s10640-012-9603-1

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