09 October 2013

Academic non-results

Even the Greeks had to facepalm
Someone sent me an academic paper exploring how to set prices to increase efficiency (total demand falls) without harming the poor (their low consumption does not fall).

The author used a model of utility (how much water benefits different classes of people) to calculate how to set increasing block rate prices for water.

I wondered about this "finding" and emailed the author to ask about the assumptions behind the model, i.e., "did you assume utility functions that are unobservable in real life?"

Yes, came the reply.

Then I asked: "What pricing would you recommend if you didn't know anything about household characteristics (# of people) or income?"

To which the author replied: "We cannot really say anything in general, but what this paper suggests is that the price should probably not be zero."

Bottom Line: Water prices should be positive -- and we really need to worry about academic contributions to water policy.

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