Review of water pricing theories and related models

Ghazali Mohayidin , and Jalal Attari, and Ahmad, Sagheri and Md Arrif Hussein, (2009) Review of water pricing theories and related models. African Journal of Agricultural Research, 4 (13). pp. 1536-1544. ISSN 1991-637X

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Water is vital for life and plays an essential role for economic development of countries. To address water scarcity issues, better pricing has been recognized as an important tool. In this paper several empirical studies which highlight water pricing theories and related models have been reviewed. These theories explain different aspect of water pricing that can be used as a means to improve water use efficiency. Analysis of partial equilibrium can be viewed as effects of a policy on a specific sector like agriculture, but an analysis of general equilibrium often involves steady-state paths which is in fact a macro-level approach. A comparison of first best pricing with second best pricing models shows that the latter are possible when transaction costs are included. In the absence of storage capacities limits and direct costs of water, development decision studies find that the price of water held in storage must rise at the rate of interest and that the effect of discounting is to cause a cycle in the water price. Finally, recent evidence suggests that the short-run efficiency of marginal cost pricing can be extended to account for long-run fixed cost considerations. (Authors' abstract)

Item Type: Article
Uncontrolled Keywords: Water pricing, marginal value product pricing, partial equilibrium, general equilibrium, marginal cost pricing, average cost pricing
Subjects: H Social Sciences > HB Economic Theory
Divisions: Centre for Graduate Studies
Depositing User: Shahril Effendi Ibrahim
Date Deposited: 25 Mar 2010 08:15
Last Modified: 21 May 2013 07:26

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