by Panos Pashardes, Phoebe Koundouri, Phoebe Koundouri, Soteroula Hajispyrou
http://www.econ.ucy.ac.cy/papers/0103.pdf
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Abstract:
This paper considers a model of household demand for water in a theoretical framework consistent with funtamendal principlesof comsumerbehaviour. It applies this model to individual household data to estimate the price and income elasticitiesof residentialdemandforwaterin Cyprusandevaluatethe welfareeffectsassociatedwithchangesinthewaterpricingsystem. We&ndthatthecurrent regionally heterogeneous increasing block pricing system in the island introduces grosspricedistortionsthatarenotjusti&edeitheronefficiencyorequitygrounds. Ashifttowardsuniformmarginalcostpricingwilleliminatethedeadweightlossof thecurrentsystem. However,itsbene&tswillbedistributedinfavourofthebetter offhouseholds. Overall,pricecanbeaneffectivetoolforresidentialwaterdemand management,however,itmayalsoleadtosociallyundesirabledistributionaleffects onhouseholds.
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