A recently published work by Gezahegn and Zhu (2017) estimates the marginal cost (MC) of residential water supply in the Ethiopian city of Mekelle. Drawing upon the economic notion that efficient pricing is equivalent to MC-pricing, the present article aims at estimating the potential welfare effects of a shift from the current increasing block rate structure to a uniform price equal to the estimated MC.
Evidence from Mekelle City, Ethiopia
The welfare analysis makes use of MC and MB (marginal benefit) curves to simulate the potential impact of the price reform on consumer surplus, revenue, cost savings and water conservation. Findings show that society (the average household and the water utility in Mekelle) would enjoy a net benefit of 0.002 birr (birr = Ethiopian currency: 1 birr 0.05 USD) per month as a result of MC-pricing.