The Economics of Urban Water Use. Efficient use and Water Pricing in Europe

Abstract

As the scarcity of water resources intensifies, water policy attracts ever-increasing interest. It is then only natural that attention be drawn to the appropriate pricing of water use, a dominant factor in an effective policy governing water resources. The present paper singles out for examination pricing systems for urban water uses. The paper begins by systematically presenting a simple economic analysis that first goes on to describe the conditions for effective pricing and then the effects of underpricing water use. It then focuses on some new elements which are introduced in order to assist in the better understanding of empirical data and existing information in real case studies. Next, the systems of pricing and managing water use in five European cities come under scrutiny and are compared to the analytical model of full cost pricing and effective use deriving from the economic analysis. The paper concludes that, after all and for the majority of cases, the existing prices are set at a lower level than that of the full cost prices of water. Inescepably, the use of water, in all indicative case cities, exceeds the optimum socioeconomic level with the result that ineffective demand management prevails. © 2006, JAPAN SECTION OF THE REGIONAL SCIENCE ASSOCIATION INTERNATIONAL. All rights reserved.