Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/203423
Authors: 
Jiang, Yi
Calub, Renz Adrian T.
Zheng, Xiaoting
Year of Publication: 
2019
Series/Report no.: 
ADB Economics Working Paper Series 580
Abstract: 
We develop a framework to analyze urban water tariff setting and its welfare implications and apply it to a panel of cities in the People's Republic of China in the 2000s. First, we find that peer cities' water tariff levels have a significant influence on a city's choice of tariffs. We use the peer cities' average tariff as an instrumental variable to estimate water demand functions, which yields elasticity estimates of around − 0.41 for both residential and industrial sectors. Second, estimation of cost functions reveals the supply of urban water services to be characterized by strong economies of scale with the majority of sample city− years on the downward sloping segment of marginal cost curves. More than half of the sample have residential water tariffs higher than the corresponding marginal costs while the share increases to 71% for the industrial sector. The deadweight loss calculated under first-best pricing suggests moderate welfare loss due to prices deviating from the equilibrium. Finally, we show that taking into account nonrevenue water losses justifies an efficient price higher than the equilibrium price.
Subjects: 
deadweight loss
multiproduct cost function
nonrevenue water
water demand
water tariff
JEL: 
L95
Q21
Q25
Q28
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by/3.0/igo/
Document Type: 
Working Paper
Social Media Mentions:

Files in This Item:
File
Size
331.39 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.