Iranian Journal of Economic Research

Pricing of Urban Drinking Water Using Ramsey Model: A Case Study of Neyshabour

Authors

Mohammad Ali Falahi 1
Hossein Ansari 2
Kamran Davari 3
Narges Salehnia 4

1 Assistant Professor of Economics, Ferdowsi University of Mashhad

2 Assistant Professors of Irrigation, Ferdowsi University of Mashhad

3 Assistant Professor, Department of Water Engineering, Ferdowsi University of Mashhad

4 PhD student in Economics, Ferdowsi University of Mashhad

Abstract
Water is a necessary and scarce good that requires new strategies for allocation and optimal use. we. Water pricing and levying suitable tariffs subject to social welfare maximization are the economic solution to this problem. In this study, we have considered available tariffs in domestic water sector of  the city of Neyshabour. According to current tariff problems, new tariffs are offered by using Ramsey Model with the target of maximization of social welfare. Finally, Ramsey tariffs are modified based on two scenarios. In the first one, we incur less cost to customers with paying a subsidy about 135.5 Rial/m3/year by government. In this scenario, the minimum cost is zero for users with consumption less than 5 m3/month and the maximum cost is 1216 Rial/m3/month for users with consumption more than 30 m3/month.  In the second one, losses related to low income group’s paying are compensated  by high income users. So, minimum cost is zero for users with consumption less then 5 m3/month, and maximum cost is 1980  Rial/m3/month for users with consumption more than 40 m3/month. In these two scenarios, the water and wastewater company would be in the break even point. 

Keywords

Tariffs
Pricing
drinking water
Ramsey Model
the water and wastewater company
Neyshabour

  • Receive Date 03 May 2016
  • First Publish Date 03 May 2016

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