Scarcity Rents for Water: A Valuation and Pricing Model

Most water utilities adhere to costing and pricing policies that ignore scarcity rents and base price on average, instead of marginal, explicit extraction cost. However, many western US cities face the imminent prospect of having fully exploited currently available low-cost water sources. Hanson...

Full description

Saved in:
Bibliographic Details
Published in:Land economics 1988-02, Vol.64 (1), p.62-72
Main Authors: James E. T. Moncur, Pollock, Richard L.
Format: Article
Language:English
Subjects:
Cost efficiency
Cost estimates
Costs
Economic costs
Economic theory
Efficiency
Extraction costs
Groundwater
Land economics
Marginal costs
Mathematical analysis
Price efficiency
Pricing
Scarcity
Studies
Water
Water resources
Water supply
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:Most water utilities adhere to costing and pricing policies that ignore scarcity rents and base price on average, instead of marginal, explicit extraction cost. However, many western US cities face the imminent prospect of having fully exploited currently available low-cost water sources. Hanson's (1980) analysis of the efficiency price path for a natural resource is extended to model the scarcity value of water in situ. The model leads to an imputation of scarcity rent and, thus, to a more efficient costing and pricing of water. The model is estimated using data from the Honolulu Board of Water Supply, which anticipates the need for desalting brackish groundwater within 20 years. The estimates of scarcity value suggest that raw water at present should be valued on the order of twice the current unit quality charge. Thus, adding the value of raw water to existing costs indicates that the current charges should be roughly tripled.
ISSN:0023-7639
1543-8325
DOI:10.2307/3146608