Consumer Demand and Welfare under Increasing Block Pricing

Panos Pashardes and Soteroula Hajispyrou

University of Cyprus Working Papers in Economics from University of Cyprus Department of Economics

Abstract: This paper argues that an increasing block pricing structure needs to be supplemented by allowances for household size and composition to be equitable. Household behaviour is modelled as the outcome of a two-stage budgeting resulting in an integrable water demand model. The welfare effects of block pricing are studied using the concept of relative equivalence scale, modified to allow for the dependence of price on household size and composition. We use individual household data to estimate residential demand for water, provide empirical illustration of the welfare effects of increasing block pricing on demographically different households and show how these effects can be compensated.

Keywords: relative equivalence scales; price endogeneity; demand for water (search for similar items in EconPapers)
Pages: 22 pages
Date: 2002-05
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:ucy:cypeua:0207

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