Pricing for water scarcity in the Maltese islands

Abstract

This dissertation addresses the issue of efficient pricing of scarce water supply in the Maltese Islands. Since domestic water use accounts for the highest percentage of total water use in the Maltese Islands, the dissertation focuses primarily on this source of demand. Recent developments in the water supply and demand situation in the Maltese Islands are outlined in chapter 2. In chapter 3 the problem of the water authority is viewed as being one of deciding how much investment is economic, and of ensuring that consumption of water is taken up in a way that reflects the true value of resources. The basic theory of efficient pricing is outlined, and on the basis of this, a working definition of marginal cost derived for application to the water sector. In chapter 4 an attempt is made to estimate marginal costs of water supply, and hence derive a price for water in the Maltese Islands that is consistent with economic efficiency criteria. The shortcomings of the estimates are examined before a comparison in made, in chapter 5, of the 1994 tariff with the estimated marginal cost price. The discussion then focuses on the implications of the current pricing structure in the light of the marginal cost estimate, as well as on the basis of other criteria. The likely impact on demand for water of a change in price is also reviewed in the concluding chapter.