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The Ironic Economics and Equity of Water Budget Rates (PDF)

  • Author(s): Beecher, Janice A.
  • Publications: Journal - American Water Works Association
  • Issue Date: February 2012
  • Volume / Number: 104, Number 2
  • Page(s): E73-E81
  • DOI: http://dx.doi.org/10.5942/jawwa.2012.104.0021
  • Product Number: JAW_0075359
Full Text: pdf
Expanded Summary: pdf

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Abstract

Water budget rates are gaining attention in the water sector. Although clearly well-intended, the water budget approach raises several serious theoretical and practical issues familiar to applied regulatory economics. In essence, water budget rates exemplify "social rate-making," i.e., a system of pricing that departs from traditional economic standards in the interest of serving social goals - in this case, water conservation. The inherent problem with this particular rate structure, however, is not its good intentions but its disconcerting implications. The troubling irony of water budget rates, however, appears to be lost in the discussion. A simple illustration reveals the mathematical reality of the rate structure based on one water district's rendition and online bill calculation tool. In addition, several implementation issues are raised. As long as their choices do not burden others, communities are free to implement water rate structures they deem appropriate to their values and goals. As posited here, however, the water sector would benefit from applying less ironic and more iconic rate-making principles.

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