UNIVERSITA' DEGLI STUDI DI
PARMA
FACOLTA' DI ECONOMIA
Academic year 2014-2015
INTERNATIONAL BUSINESS AND
DEVELOPMENT
ENVIRONMENTAL ECONOMICS
PROFESSOR PAOLO FABBRI
ANNICCHIARICO FRANCESCA 254965
TASSO DONATELLA 254975
VILONNA ROBERTA 253779
EFFICIENCY AND EQUITY IN TWO-PART
TARIFFS: THE CASE OF RESIDENTIAL WATER
RATES
 According to Coase efficiency in utility regulation can be
reached when marginal prices are equal to marginal costs
and fixed fees cover fixed costs.
 Implementing two-parts tariffs that consist in a fixed-fees
and a volumetric charge depending on water consumption
it's possible to set an equal price.
 Moreover, efficiency can be used to give assistance to
poor households.
 The water supply in French exemplifies this theory:
 water market in French represented a market of 5,4
billions euros in 2008 and main costs it has to sustain are
split into three parts: first, costs for extracting and
distributing water to consumers; second, costs for
processing bills and taking calls and third, costs to
maintain connections and installation of water meters.
 The management of this resource can be PUBLIC or
PRIVATE, but the dominating form of contract seems to
be the “ delegated management”, so a private operator is
responsible for the management.
 Some regulations are made in order to avoid opportunistic
behaviours, due to the lack of price-cap and rate of return.
 In fact, because regulations are made through contracts
between the two parts, there are still doubts about the
efficiency and equity regarding the adoption of the right
price for consumers.
 Data show that there is a little deviation ( about 8%) from
marginal price to marginal cost, so that measures to
rebalance rate are requested.
 The Two-part tariffs represent the most efficient method to
reach the equity, because it splits the fees into two parts (
fixed tariff, and volumetric charge depending on
consumers' water consumption) so that Volumetric charge
can be set equal to M.C. And the fixed fee covers fixed
costs.
 Rebalancing rates using the Coasian tariffs imply an
increase in welfare for consumers, because there is a
positive correlation between water consumption and
income. As a consequence, it supports high income based
households rather then low income based ones.
 However alternative water policies are implemented to
sustain 3 million French people through the payments of a
part of bill by governmental agencies.
 Crossing data from IFEN (French Environmental
Institute) and INSEE ( French National Institute for
Economics and Statistics ) we find a lot of informations
about municipalities and their level of water consumption,
and some features influencing it.
 The table take into consideration a sample of 4.500
municipalities and 16,7 million households.
 The panel A shows Cities economic and demographic
characteristics, dividing in quintile the percent of poverty
line.
 The first raw points out that there is a little variation
among the five quintiles considering the Mean Annual
Median Income, the number of household members, the
portion of children under 15 , the portion of adults above
60 and the turistic and urban areas.
 The panel B shows Water consumption and expenditure




and
from the second related raw also emerged a little variation
among the five quintiles, with references to Mean annual
consumption, Mean annual expenditure, expenditure as a
fraction of income, marginal price, fixed price.
The panel C shows Water utilities characteristics and
the third raw confirms the previous analysis,
demonstrating the same little variation when it refers to
Proportion of privately managed, underground water,
ground water, treatment complexity, net revenues per
customers.
As a result, the deviation of about 8% emerging from the
table doesn't compromise the efficiency and equity in the
utility regulation.
Conclusions:
 Basing on previous data we can estimate three main
results: First, there is just an 8% gap between marginal
prices and costs; second the current tariffs leads to a little
consumption for a range of households because of
inefficient prices; third, despite of the efficiency in
pricing, some differences between consumers remain. But
water assistance programs are employed to eliminate the
negative effect of marginal cost pricing and sustain poor
French households.
 THANKS FOR YOUR ATTENTION