|About the Book|
Recent changes in the New South Wales water utilities show a trend towards usage-related pricing, with the aim of providingefficient signals for consumption. This thesis evaluates alternative pricing strategies for water against the criteria ofMoreRecent changes in the New South Wales water utilities show a trend towards usage-related pricing, with the aim of providingefficient signals for consumption. This thesis evaluates alternative pricing strategies for water against the criteria ofefficiency and equity while maintaining the financial viability of the public utility. First, the water utility coststructure is examined by developing cost functions to estimate short and long-run marginal costs, using a quarterlytime-series data from 1970/71 to 1995/96. Second, a residential water demand model is developed using a panel data set(constructed for the analysis), comprising 822 cross-sectional units and 23 quarterly time periods from 1990/91 to 1995/96.The purposes of developing the demand model are to test the sensitivity of water demand to changes in the tariff structureand to use it to simulate the impact of alternative pricing strategies. Third, the simulation model is developed to analysevarious pricing reforms using both the cost and demand model results, where the individual welfare and aggregate efficiencygains are determined under each pricing policy. In addition to this, the distributional effects of various tariff structuresare examined.The empirical results of the cost structure estimates are comparable with previous studies. The demand estimation indicatesthat consumers respond to price, therefore price can be considered as a tool in the implementation of demand managementstrategies. However, the magnitude of the price elasticity suggests that substantial increases in price would be required toinfluence demand. Finally, the simulation results show that in the case of movement from the actual tariff structure to atwo-part tariff policy (where the usage charge is equal to the short-run marginal cost), leads to highest efficiency gains.