Water Prices and Other Inefficiencies in Water Markets

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Water Prices and Other Inefficiencies in Water
Markets

• Monday, April 3

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How are water users charged?

• Flat fee pricing
• Total cost of 100 gallons is the same as total
  cost of 10 gallons
• Flat rate pricing
• Priced on a per unit basis 100th unit costs the
  same as the 10th unit
• Average cost pricing
• Total operating costs divided by number of units
  used (e.g. cost per gallon)

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How are water users charged?

• Declining block pricing
• High marginal price for first units (block) of
  water units used
• Subsequent units (blocks) are less expensive
• Increasing block pricing
• Subsequent blocks of water consumed beyond an
  initial quantity are priced at increasingly
  higher levels

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What is efficient pricing?

• Marginal cost pricing
• Consumers pay a price equal to the marginal cost
  of supplying the water

MC
P
MB
water
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Water public or private good?

• Open access
• Ground water in Texas
• Exclusivity and Enforceability
• Reasonable use doctrine in Michigan
• Large quantity withdrawals must register and must
  not have adverse resource impact
• Transferability Ability to transfer use rights
  to highest value use
• Privatization