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Flat Rate Water Pricing Analysis

This case study examines water conservation policy in the US and Canada. It finds that demand for household water is more inelastic than business demand. It also shows that a larger proportion of users face flat rates or declining block rates than estimated, making residential demand less responsive to price changes. The document recommends shifting more users to metered pricing and setting a maximum consumption level per household to improve the effectiveness of water pricing as a conservation policy.

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2K views15 pages

Flat Rate Water Pricing Analysis

This case study examines water conservation policy in the US and Canada. It finds that demand for household water is more inelastic than business demand. It also shows that a larger proportion of users face flat rates or declining block rates than estimated, making residential demand less responsive to price changes. The document recommends shifting more users to metered pricing and setting a maximum consumption level per household to improve the effectiveness of water pricing as a conservation policy.

Uploaded by

bajracharyasandeep
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd

Case Study: Water Conservation Policy

Group C
 Ritesh Khadka
 Ruby Maskey
 Sandeep Shrestha
 Subarna Budhathoki
Overview

 Summary Of The Case


 Discussion Questions
 Recommendation
Summary Of The Case

 Deficit in water supply in USA and Canada


 USA facing drought conditions in 2003
Environmental authorities concern over
Water Conservation
Proposed “pricing” as a means to
stimulate conservation
Estimated Price elasticity of demand for water :
Households: -0.2 to -0.4
Business Users: -0.5 to -0.8
Demand for Household Users (More Inelastic)
Price (P)
Demand for Business Users (Less
Inelastic)
P1

P0

Q1 Q0 Q2 Q3 Quantity (Q)

Figure: Demand Curve of Water Consumption for Household and Business


Users
Consumers in Different Pricing Systems

Pricing Percentage of Consumers


System
U.S.A Canada
Flat Rate 23 43
Declining - 12
Rate
Metered 77 45
Discussion Question 1:
How do you expect the price-elasticity of
the residential demand for water to vary
with the total annual consumption of the
household?
Variation of Price Elasticity with Total
Annual Consumption
Price/ ’000 liters in Individual Price Elasticity
dollars($) household
consumption in
liters
10 10,000 -
11 9,800 -0.20
12.1 9,595 -0.21
13.31 9,355 -0.25
14.64 9,074 -0.30
Discussion Question 2:

Who benefit relatively more from a


flat fee? Poor or rich households?
Relative Benefit between Rich and Poor

Economic Charge in Total Charge


class Dollars Consumptio per unit
n (liters) per
month
Rich 10 20,000 0.001

Poor 10 10,000 0.0005


Discussion Question 3:

Considering that a large proportion of


residential users face a flat charge or
even decreasing unit prices, do you
think that the price-elasticity of
residential demand is under or over-
estimated?
Consumers in Different Pricing Systems

Pricing Percentage of Consumers


System
U.S.A Canada
Flat Rate 23 43
Declining - 12
Rate
Metered 77 45
Pricing Percentage of Consumers
System (supposed)
U.S.A Canada
Flat Rate 62 57
Declining - 18
Rate
Metered 38 25
Discussion Question 4:

What are the implications of your


answer in question 3 for raising prices
as a conservation policy?
Implications
 Not very effective
Higher proportion of flat charge or declining
rate users more inelastic demand
Recommendations

Flat Rate subscribers need to be


shifted to Metering

Fixation of maximum consumption


level per household

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