Welfare Effects of Water Pricing in Germany

Müller, Christopher (2012): Welfare Effects of Water Pricing in Germany.

Abstract

The observed two-part tariff price structure (consisting of a lump-sum price and a linear marginal price) for drinking water in Germany does not reflect the cost structure reported in the literature. Recovering marginal costs from a sample of 251 German counties, we see that there are positive price–cost margins, while lump-sum prices are too low. A price-structure readjustment along welfare-economic principles (marginal cost pricing; lump-sum price ensures cost recovery) would increase the mean consumer surplus by 0.037% of the local GDP or € 2.129 million per county, assuming a share of 15% variable costs in total costs.

• Item Type: MPRA Paper
• Language: English
• Keywords: residential water demand; welfare measurement; public water supply; equity– efficiency trade-off; marginal versus average price sensitivity; natural monopoly; public services
• Subjects: L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L32 - Public Enterprises ; Public-Private Enterprises; H - Public Economics > H4 - Publicly Provided Goods > H42 - Publicly Provided Private Goods; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O25 - Industrial Policy; L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L95 - Gas Utilities ; Pipelines ; Water Utilities; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q21 - Demand and Supply ; Prices; D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency ; Cost-Benefit Analysis

References

Arbués, F., García-Valiñas, M. A., and Martínez-Espiñeira, R. (2003), 'Estimation of Residential Water Demand: A State-of-the-Art Review', Journal of Socio-Economics 32, 81–102.

Leist, H.-J. (2007), Wasserversorgung in Deutschland. Kritik und Lösungsansätze, Oekom, München.

Mas-Colell, A., Whinston, M. D. and Green, J. R. (1995), Microeconomic Theory, Oxford University Press, New York, Oxford.

Olmstead, S. (2009), 'Reduced-Form Versus Structural Models of Water Demand under Nonlinear Prices', Journal of Business and Economic Statistics 27, 84–94.

Reif, T. (2002), Preiskalkulation privater Wasserversorgungsunternehmen, Wirtschafts- und Verlagsgesellschaft Gas und Wasser, Bonn.

Rudolph, K.-U. and Orzehsek, K. (1997), 'Die Fixkostenproblematik in der Wasserwirtschaft am Beispiel der Abwasserentsorgung der Hansestadt Rostock', Wasserwirtschaft 87, 10–14.

Schleich, J. and Hillenbrand, T. (2009), 'Determinants of Residential Water Demand in Germany', Ecological Economics 68, 1756–1769.

Stock, J. H. and Yogo, M. (2005), 'Testing for Weak Instruments in Linear IV Regression', in: James H. Stock (ed.), Identification and Inference for Econometric Models. Essays in Honor of Thomas Rothenberg, Cambridge University Press, Cambridge, MA.

Strengmann-Kuhn, W. (2003), Armut trotz Erwerbstätigkeit, Campus Frankfurt, New York.

Wackerbauer, J. (2003), 'Regulierungsmodelle für die öffentliche Wasserversorgung und ihre Wettbewerbseffekte', ifo Schnelldienst 56, 9–16.

Wooldridge, J. M. (2002), Econometric Analysis of Cross Section and Panel Data, MIT Press, Cambridge, London.

Worthington, A. C. and Hoffman, M. (2008), 'An Empirical Survey of Residential Water Demand Modelling', Journal of Economic Surveys 22, 842–871.