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We evaluate whether changing from a uniform price (UP) to an increasing block tariff (IBT) changes people's behavior. We exploit a unique setting in which the price scheme moves back and forth yearly from UP to IBT. We discuss the effectiveness of IBT in reducing summer consumption. This issue is relevant to many countries and policymakers interested in designing tariff structures. There is no evidence of how the same consumer may react to systematically switching from one tariff structure to another yearly. We estimate the residential water demand and its price elasticity using a generalized least squared random effect model for the UP and the discrete/continuous choice model for the IBT. In addition, we split the sample between low and high‐consumption groups. For the low consumption group unaffected by the tariff change, the elasticity in the nonsummer months is higher (more elastic) than in the summer. Consumers in this group reduce their elasticity from nonsummer to summer months (−0.299 vs. −0.071, respectively) and increase their consumption by 13%. The high consumption group increased its summer consumption, but only by 8.7%, and contrary to the first group, its elasticity increased significantly (from −0.299 to −0.568). The high‐consumption group is indeed affected by the change in tariff. From a policy perspective, this implies that the IBT structure is relevant. However, if the policy seeks to promote conservation, it needs to be adjusted to a lower decile of the water consumption distribution to affect a more significant portion of the population. Key Points We estimate the residential water demand and its price elasticity under systematic shifts between uniform price and increasing‐block tariff structure We estimate different treatments of the sample: splitting it between summer and nonsummer months and between low and high consumption levels From a policy perspective, we find that people react to tariff changes and that tariff reforms should consider consumers' heterogeneity

Despite being politically sensitive, water tariffs are frequently administered without information about households' preferences for tariff structures. In this paper we examine the tariff preferences of 1,500 households in Kathmandu, Nepal. We first use a bivariate probit model to examine stated preferences for (1) an increasing block tariff (IBT) and (2) a positive fixed charge. We find that household preferences for IBTs and fixed charges are not easily explained by household socioeconomic and water use characteristics. Second, we ask respondents what they think a fair water bill would be for a randomly assigned quantity of water. We model the responses as a function of both quantity and household socioeconomic and water use characteristics. While households support a water tariff that results in a household's water bill increasing as a household's water use increases, we do not find evidence that households support an increasing, nonlinear relationship between water use and a household's water bill. Our results suggest that respondents desire affordable piped water services and water bills that are calculated fairly for everyone. Because the notion of fairness in Kathmandu varies, utility managers may have considerable latitude in choosing a tariff structure that focuses on other objectives, such as cost recovery, revenue stability, and economic efficiency.

The sustainable management of water resources can be pursued through effective tariff policies capable of discouraging water wastefulness. Increasing Block Tariffs (IBT) represent a method of pricing the water service which consists of providing various tariff ranges, with a unit cost that increases as consumption increases. The definition of the consumption ranges and the relative tariffs must guarantee the right balance between the needs of the users and the need to protect the resource according to 2030 Sustainable Development Goals (SDGs). This study proposes an optimization model useful for ensuring the tariff structure complies with the guidelines dictated by the Integrated Text for Water Services Tariffs (TICSI), an Italian standard that aims to rationalize and level out the fee structure at the national level. The purpose of the model is to guarantee the sustainability of the tariffs for users, protect less well-off households, and, at the same time, to ensure that the fees grow with consumption in an optimal way for the operator, in compliance with the economic constraints imposed by the national authority (ARERA). The model, which consists of a non-linear function capable of minimizing the difference between the tariffs before and after TICSI’ rules implementation, was tested through a case study. Specifically, the optimal water tariffs for each consumption range were defined for an operator in Southern Italy. The proposed model makes it possible to integrate EU guidelines relating to “polluter pays” and the protection of water resources more effectively into the national regulatory framework.

Residential water demand management using price and non-price measures to conserve water has gained considerable international attention from water utilities over the last few decades. The objective of this paper is to explore the effectiveness of different pricing schemes on water conservation. In this study, we compare the ‘conservation-orientedness’ of two pricing schemes. These are a uniform pricing scheme and an increasing block tariff scheme (IBT) structure. A quasi-experimental method is used for this purpose involving 150 suburbs in the Brisbane City Council (BCC) in Queensland, Australia for a 4-year period between 2005 and 2008. Our results show there are more conservation benefits associated with an IBT pricing scheme than a uniform pricing scheme.