Review of water pricing theories and related models
Water is vital for life and plays an essential role for economic development of countries. To address water scarcity issues, better pricing has been recognized as an important tool. In this paper several empirical studies which highlight water pricing theories and related mo...
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| Main Authors: | , , , |
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| Format: | Article |
| Published: |
Academic Journals
2009
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| Subjects: | |
| Online Access: | http://library.oum.edu.my/repository/364/1/Mohayidin_et_al%5B1%5D.pdf http://library.oum.edu.my/repository/364/ |
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| Institution: | Open University Malaysia |
| Summary: | Water is vital for life and plays an essential role for economic development of countries. To address
water scarcity issues, better pricing has been recognized as an important tool. In this paper several
empirical studies which highlight water pricing theories and related models have been reviewed. These
theories explain different aspect of water pricing that can be used as a means to improve water use
efficiency. Analysis of partial equilibrium can be viewed as effects of a policy on a specific sector like
agriculture, but an analysis of general equilibrium often involves steady-state paths which is in fact a
macro-level approach. A comparison of first best pricing with second best pricing models shows that
the latter are possible when transaction costs are included. In the absence of storage capacities limits
and direct costs of water, development decision studies find that the price of water held in storage must
rise at the rate of interest and that the effect of discounting is to cause a cycle in the water price.
Finally, recent evidence suggests that the short-run efficiency of marginal cost pricing can be extended
to account for long-run fixed cost considerations. (Authors' abstract) |
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