« Pricing Water » or How to make public utilities self-sustained, consumers responsible and account for essential needs?

Abstract

We develop a framework to formally take matters of partial responsibility into account when devising rates for utility services. We characterize two polar opposite rate-setting solutions. The Conditionally Egalitarian Solution emphasizes responsibility for excessive usage while the Egalitarian Equivalent Solution stresses compensation for differences in needs. Within these two solutions, we provide characterizations of several underlying cost-sharing rules to govern the management of the production externality when coupled by the relevant responsibility/compensation transfers.