Environmental aspects of water price formation. An empirical investigation of the cost of ground water protection

This paper tries to develop a scarcity price for groundwater resources in the Federal Republic of Germany (FRG). The present legal framework in the FRG is based on quantity regulation. This framework, as well as the quantitative structure of demand and supply, is analysed. In the absence of market values, a model calculation for water protection is carried out to estimate the scarcity price of water. According to this model calculation, the average water price should be twice as high as it is. The implications of such a price development for the demand side are being analysed.