Abstract
Economic theory generally assumes that consumers respond to marginal price, which is the price of the last unit of goods consumed, when making economic decisions. However, this assumption may not hold for goods with multi-block rate schedules. This paper explores the effects of water price information on residents’ behaviors under increasing block tariffs. The empirical evidence from the study suggests the middle-income groups respond to average price, which is based on the price level given by total fees divided by total consumption. This evidence supports the hypothesis that the incremental block tariffs are actually treated the same as uniform pricing for the middle-income group, while the highest income group is not sensitive to price changes. On the contrary, residents of the two lowest income groups respond to marginal price and probably go further to compare prices of different blocks and set consumption at kink points of price schedules to achieve maximal welfare. This study also finds that a higher second block price promotes consumption at kink points, and increased payments in first block consumption lead to less incentive to induce discrete choice behavior.
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Notes
‘RMB’ is the Chinese currency and the exchange rate is 6.3 RMB per dollar in 2011. Herein, we provide both values RMB (US$).
China is also facing non-revenue water which is a crucial parameter to generate a socially fair water pricing. In the case of the apparent loss, it can be noticed that the unauthorized consumption rarely happened because almost all the families have their water meters indoors and the water consumption is calculated from the meters which means that the reading from the meter is the volume that the family exactly consumed, this situation is experienced more by urban residents. The latest standard water meters (National Executive Standard Number is GB/T778.1 ~ 3) have been implemented in China from 2008 and showing a higher sensitivity. Recently, it seems that there are not important metering inaccuracies. In the case of real loses, (leakage on transportation, leakage and overflow at the storage unit and leakage in service connection) the data shows that China’s average urban water supply real loss rates from 2006 to 2009 are respectively 18.6 %, 17.6 %, 17.7 % and 16.2 %. There are 26 provinces of which real loss rates are higher than 12 % and 13 provinces higher than 20 % and only 5 provinces lower than 12 % which is the maximum acceptable rate defined by the Standard for Leakage Control and Assessment of Urban Water Supply Distribution System of China in 2009 (China Urban Water Association 2010).
During this study survey period, the daily maximum and minimum temperatures ranged respectively between 21 to 28 and 10 to 14 Celsius degrees (Beijing Meteorological Bureau 2011).
Because the water expenditure share (water expenditure divided by disposable income) is relatively low (there are approximately 90 % of residents whose water expenditure share is less than 2 % in our sample) under the current price. This study has not identified any water storage behaviors from the survey which may theoretically exist. In China if the water supply is going to be cut, the government will notice the residents in advance reminding them to store some water. Therefore, this paper argues if the difference between the block prices are high enough, this may arouse the behavior of water storage as they do in the water cut emergency. If the water consumption still have a gap to the nearest kink point, the consumers are likely encouraged to store certain amount of the resource to use it in the next month in order to avoid the excess that they can have if they don’t show this behavior.
The invalid samples include three types: 1) respondents encountered emergences when the survey was conducted; 2) respondents who were not urban residents of Beijing; 3) respondents who did not answer the behavior questionnaire because they had difficulties understanding the expressions that the researcher used.
The aim of the study is to identify the perceived price rather than to analyze the reasonable price schedule. Therefore, the eight experimental scenarios should include sufficient block and price variations.
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Acknowledgments
This study is a continuing effort of the cooperative study with University College London and University of Cambridge. We extend our gratitude to Professor Tim Swanson, Dr. Ben Groom and Dr. Andreas for their advice on approaches and methodologies and their efforts on the project for The China Council for International Cooperation on Environment and Development (CCICED). The authors are thankful for the valuable comments and editorial assistance of Mr. Peter Mauricio Larrea Parra. We also thank all members of the Environment and Economy Policy Study Group (EEPS) of Peking University for their contributions.
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Ma, X., Zhang, S. & Mu, Q. How Do Residents Respond to Price under Increasing Block Tariffs? Evidence from Experiments in Urban Residential Water Demand in Beijing. Water Resour Manage 28, 4895–4909 (2014). https://doi.org/10.1007/s11269-014-0561-y
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DOI: https://doi.org/10.1007/s11269-014-0561-y