Abstract
The provision of wastewater services is an important infrastructure service that affects social welfare. It improves the quality of community life by promoting sanitary conditions and minimizing the negative impact of wastewater on ecosystems. The price for this important public service, however, varies considerably across regions and localities. In this paper, we examine the physical factors and institutional characteristics that affect wastewater service prices across regions and localities. Our major concerns are the following: (1) institutional arrangements and characteristics of a wastewater utility, (2) government regulations, (3) supply factors and characteristics, and (4) natural environments and local characteristics. To analyze the price differences, we employ the demand and price equations for wastewater services using a simultaneous equations framework. For empirical estimation, we utilize a seemingly unrelated regression (SUR) method to account for the correlations between the residuals in the four price equations for wastewater services. Our empirical results are that the institutional arrangement of services, including monthly charges (versus bi-monthly or quarterly charges), provision of other infrastructure services in addition to wastewater services, and long-term debt, explain much of the price difference. In addition, the wastewater prices are influenced by state environmental regulations as well as supply factors, such as the number of wastewater treatment plants and infiltration and inflow into the sewer system. Interestingly, local geographic and meteorologic factors that were hypothesized to affect the selection of treatment processes were not found to be associated with price. These findings suggest ways wastewater services might be offered at lower prices for users.
Similar content being viewed by others
References
American Water Works Association (AWWA)/Raftelis Financial Consulting (2005) 2004 Water and Wastewater Rate Survey Results. Denver
Bae S (2007) Explaining geographical differences in water prices: do institutional factors really matter?. Rev Reg Stud 37(2): 207–250
Barkatullah N (2002) OLS and instrumental variable price elasticity estimates for water in mixed effect model under a multipart tariff structure. London Economics. Available at http://www.londecon.co.uk/Publications/DEMD1.pdf, May 2006
Bozeman B (2002) Public value failure: when efficient markets may not do. Public Administration Rev 62(2): 145–161
Breusch TS, Pagan AR (1980) The Lagrange multiplier test and its applications to model specification in econometrics. Rev Econ Stud 47(1): 239–253
Cameron AC, Trivedi PK (2005) Microeconometrics: methods and applications. Cambridge University Press, New York
Dole D (2002) Economic issues in the design and analysis of a wastewater treatment project. Economics and research department technical note no. 4, Asian Development Bank
Environmental Protection Agency (2010) About water & wastewater pricing. Washington. Available at http://water.epa.gov/infrastructure/sustain/about.cfm, December
Field AP (2009) Discovering statistics using SPSS. 3rd edn. Sage Publications Inc, Thousand Oaks
Halvorsen R (1975) Residential demand for electric energy. Rev Econ Statist 57: 12–18
Hanke SH, Wentworth RW (1981) On the marginal cost of wastewater services. Land Econ 57(4): 558–567
Haughwout AF (2001) Infrastructure and social welfare in metropolitan America. Economic Policy Review, Federal Reserve Bank of New York, pp 1–16
Hewitt JA (2000) An investigation into the reasons why water utilities choose particular residential rate structures. In: Dinar A (ed) The political economy of water pricing reforms. Oxford University Press, New York, pp 259–277
Hutson SS, Barber NL, Kenny JF, Linsey KS, Lumia DS, Maupin MA (2004) Estimated use of water in the united states in 2000. U.S. Geological Survey, Reston
Kessides C (1996) A review of infrastructure’s impact on economic development. In: Batten DF, Karlsson C (eds) Infrastructure and the complexity of economic development. Springer, New York, pp 213–230
King County (Washington) (2008) Regional infiltration and inflow control program. Available at http://dnr.metrokc.gov/WTD/i-i/whatis.htm, January
Koplow D (1998) Cost accounting and budgeting for improved wastewater treatment. Office of Policy, Planning, and Evaluation, U.S. Environmental Protection Agency
Merrett S (1997) Effective demand and the price of water. In: Merrett S (ed) Introduction to the economics of water resources: an international perspective. Rowan & Littlefield Publishers, New York, pp 53–83
Renwick M, Green R, McCorkle C (1998) Measuring the price responsiveness of residential water demand in California’s urban areas. California Department of Water Resources, Sacramento
Rubin SJ (2003) The cost of water and wastewater service in the United States. National Rural Association, Duncan
Shaw WD (2005) Water resource economics and policy: an introduction. Edward Elgar, Northampton
Siy E, Koziol L, Rollins D (2001) The state of the states: assessing the capacity to achieve sustainable development through green planning. Resource Renewal Institute, San Francisco
Staiger D, Stock JH (1997) Instrumental variables regression with weak instruments. Econometrica 65(3): 557–586
Vernick AS, Walker EC (1981) Handbook of wastewater treatment processes. Marcel Dekker Inc., New York
Zellner A (1962) An efficient method of estimating seemingly unrelated regressions and tests for aggregation bias. J Am Statist Assoc 57: 348–368
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Bae, S., Gen, S. & Moon, SG. Institutional, geographic, and facility factors affecting differences in prices for wastewater services. Ann Reg Sci 49, 767–788 (2012). https://doi.org/10.1007/s00168-011-0441-9
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s00168-011-0441-9