An Incentive Water Pricing Policy for Sustainable Water Use |
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Authors: | Jihad C Elnaboulsi |
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Institution: | (1) CRESE, Université de Franche-Comté, 45 D, Ave. de l’Observatoire, 25030 Besancon Cedex, France |
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Abstract: | By adopting the Water Framework Directive (WFD), the European Commission (EC) and the European Council made recommendations
for water pricing policies in European Union (EU) member states with a view to enhancing the sustainability of water resources.
Clearly, the directive integrates economic instruments in environmental policies to provide incentives for the sustainable
use of water resources. Our analysis will focus on public water utilities, required to be financially self-sufficient, facing
demand and capacity shocks. The paper deals with the simultaneous determination of incentive pricing policies and investment
rules under an ex~ante maximum demand charge. We will characterize the welfare-optimal capacity selection rule and the welfare-optimal
maximum demand pricing rule. Heterogeneous consumers demands are considered when tariffs are set ex~ante, before demands are
known. Our results are state-contingent nonlinear pricing that responds to demand fluctuations and capacity constraints.
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Keywords: | Optimal pricing Capacity planning Water utilities Investments Contingency Shocks WFD |
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