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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Jürges, Hendrik / Ludwig, Sandra

Ed. by Auriol , Emmanuelle / Brunner, Johann / Fleck, Robert / Mendola, Mariapia / Requate, Till / Schirle, Tammy / de Vries, Frans / Zulehner, Christine

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Volume 3, Issue 1 (Sep 2004)


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Cost Recovery, Efficiency, and Economic Organization for Water Utilities

Edna T. Loehman
  • 1Purdue University,
Published Online: 2004-09-20 | DOI: https://doi.org/10.2202/1538-0645.1232


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.

Keywords: water; public utility; nonlinear pricing; cost recovery; privatization; investment

About the article

Published Online: 2004-09-20

Citation Information: Contributions in Economic Analysis & Policy, ISSN (Online) 1538-0645, DOI: https://doi.org/10.2202/1538-0645.1232. Export Citation

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