Water Prices and Other Inefficiencies in Water Markets Monday, March 28

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)

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

What is efficient pricing? Marginal cost pricing Consumers pay a price equal to the marginal cost of supplying the water $ MC P Profit MB water Q

Water: public or private good? Open access Ground water in Texas Exclusivity and Enforceability “Reasonable use” doctrine in Michigan Transferability: Ability to transfer use rights to highest value use Privatization