Increasing block tariffs (IBTs) are currently used to price urban water in many Australian mainland capitals and a great many cities worldwide. This paper provides a systematic analysis of the impact of the adoption of IBTs to price urban water under the common constraints of scarce supply and cost recovery. The key tools available to policymakers using IBTs are the volumetric rate in the low tier and the threshold level of that tier. This paper shows how variations in these tools influence (i) the fixed charge set by the firm, (ii) the deadweight loss from the IBT and (iii) the bill paid by customers for particular levels of demand. Our analysis suggests that IBTs are neither fair nor efficient. We propose a modification to IBTs that while retaining their perception of fairness results in the efficeint allocation of urban water.

Item Type:	Refereed Article
Keywords:	economic efficiency, increasing block tariffs, urban water pricing
Research Division:	Economics
Research Group:	Applied economics
Research Field:	Environment and resource economics
Objective Division:	Economic Framework
Objective Group:	Measurement standards and calibration services
Objective Field:	Agricultural and environmental standards and calibrations
UTAS Author:	Sibly, HA (Dr Hugh Sibly)
ID Code:	87747
Year Published:	2014 (online first 2013)
Web of Science® Times Cited:	17
Deposited By:	Economics and Finance
Deposited On:	2013-12-04
Last Modified:	2017-11-27
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