Journal of Regulatory Economics

, Volume 22, Issue 1, pp 29–58 | Cite as

Desperately Seeking θ's: Estimating the Distribution of Consumers Under Increasing Block Rates

  • Fidel Castro-Rodríguez
  • José María Da-Rocha
  • Pedro Delicado


This paper shows that increasing block rate pricing schedules usually applied by water utilities can reduce the efficiency and equity levels. To do this, we first present a two step method to estimate the demand and to recover the distribution of consumer tastes when increasing block rate pricing is used. We show that in this case the tariff induces a pooling equilibrium and customers with different taste parameters will be observed to choose the same consumption level. Second, we show that a two-part tariff that neither reduces the revenue for the firm nor increases the aggregate level of water consumption increases the welfare and equity levels in relation to an increasing block rates schedule.


Water Consumption Public Finance Industrial Organization Aggregate Level Consumption Level 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Agthe, D. E., and R. B. Billings. 1987. “Equity, Price Elasticity, and Household Income Under Increasing Block Rates for Water.” American Journal of Economics and Sociology 46: 273-286.Google Scholar
  2. Brown, S. B., and D. Sibley (Eds). 1986. The Theory of Public Utility Pricing. Cambridge: Cambridge University Press.Google Scholar
  3. Crandall, R. W., and L. Waverman. 1995. Talk is Cheap. The Promise of Regulatory Reform in North American Telecommunications. Washington: Brookings.Google Scholar
  4. Dimopoulos, D. 1981. “Pricing Schemes for Regulated Enterprises and their Welfare Implications in the Case of Electricity.” Bell Journal of Economics 12(1): 185–200.Google Scholar
  5. Gabel, D., and M. D. Kennet. 1993. “Pricing of Telecommunications Services.” Review of Industrial Organization 8: 1–14.Google Scholar
  6. Ivaldi, M., and D. Martimort. 1994. “Competition Under Nonlinear Pricing.” Annales D'Economie et De Statistique 34: 71–114.Google Scholar
  7. Mercer, L., and W. Morgan. 1985. “Conservation Using a Rate of Return Rule: Some Examples From California Municipal Water Departments.” Water Resources Res. 21(7): 927–933.Google Scholar
  8. Mitchell, B. M. 1978. “Optimal Pricing of Local Telephone Service Nonuniform Prices.” American Economic Review 68: 517–537.Google Scholar
  9. OECD. 1999. The Price of Water. Trends in OECD Countries. Paris: OECD.Google Scholar
  10. Petrin, A. 1998. “Two Essays in Applied Microeconomics. Minivans and Chile.” Ph.D. dissertation, University of Michigan.Google Scholar
  11. Read, R. C., and A. C. Cressie. 1988. Goodness-of-Fit Statistics for Discrete Multivariate Data. Springer-Verlag.Google Scholar
  12. Renzetti, S. 1992. “Evaluating the Welfare Effects of Reforming Municipal Water Prices.” Journal Environmental Economics and Management 22: 147–163.Google Scholar
  13. Rochet J-C., and P. Choné. 1998. “Ironing, Sweeping, and Multidimensional Screening.” Econometrica 66(4): 783–826.Google Scholar
  14. Wilson, R. 1993. Nonlinear Pricing. New York: Oxford University Press.Google Scholar

Copyright information

© Kluwer Academic Publishers 2002

Authors and Affiliations

  • Fidel Castro-Rodríguez
    • 1
  • José María Da-Rocha
    • 2
  • Pedro Delicado
    • 3
  1. 1.Dep. Fundamentos, Facultade de EconómicasUniversidade de VigoVigoSpain
  2. 2.Dep. Fundamentos, Facultade de EconómicasUniversidade de VigoVigoSpain
  3. 3.Dep. d'Estadística i Investigació OperativanUniversitat Politècnica de CatalunyaBarcelonaSpain

Personalised recommendations