A BEJEAP Contributions article.

Abstract

This paper describes a new method of utility pricing – Variable Unit Pricing (VUP) – that results in both economic efficiency and cost recovery for a variety of supply situations faced by water utilities. The main advantage of VUP – compared to Increasing Block Rates – is that its parameters can be objectively determined from demand and cost information.

The theoretical support for VUP is a welfare economics paradigm that integrates pricing with economic organization. VUP is shown to achieve social efficiency for a fixed-fee contractual arrangement between a profit-maximizing water utility and a public agency.

Public involvement is required to express equity concerns, demand for public goods such as water quality and security, and to identify appropriate supply limits for conservation.

Submitted: November 10, 2003 · Accepted: September 1, 2004 · Published: September 20, 2004

Originally published in Contributions to Economic Analysis & Policy.

Recommended Citation

Loehman, Edna T. (2004) "Cost Recovery, Efficiency, and Economic Organization for Water Utilities," Contributions to Economic Analysis & Policy: Vol. 3 : Iss. 1, Article 16.
Available at: http://www.bepress.com/bejeap/contributions/vol3/iss1/art16