Estimating the Amount of Compensatory Payment as a Result of Changes in Energy Prices in the Field of Urban Drinking Water Consumers

Document Type : Research Article

Authors

1 PhD student, Department of Agricultural Economics, Faculty of Agriculture, Tarbiat Modares University, Tehran, Iran

2 Associate Professor, Department of Agricultural Economics, Faculty of Agriculture, Tarbiat Modares University, Tehran, Iran

3 Assistant Professor, Department of Agricultural Economics, Faculty of Agriculture, Tarbiat Modares University, Tehran, Iran

Abstract

The expansion of urbanization has created a variety of needs, the most important of which is the supply of drinking water. Therefore, it is important to know the amount of water demand and the factors affecting it. Meanwhile, the impact of reduced subsidies on drinking water is very sensitive. Because, increasing its price, will lead to changes the welfare of urban consumers. Rey city is one of the cities of Tehran province that the urban population in this city has increased significantly in recent years, and on the other hand, the only source of drinking water is groundwater in this city and since the level of groundwater aquifer in the Rey plain has decreased significantly, so it is important to study the function of water demand in this area and the factors affecting it. Due to the necessity of research, this paper estimates the water demand function of Rey city using the time series data of 2002-2019 and the Stone-Geary utility function. The amount of income that must be paid to the households of Rey city in order to stay at the initial welfare level is obtained with using the compensated variation index and the price elasticity of demand and the elasticity of income. The results show that water in the study area was a low elasticity and essential commodity and the amount of compensatory payment in the year of the implementation of the targeted subsidies law is equal to 179225/73 Rials and in 2019 is equal to 1541430/02 Rials. As a result, the increase in water prices has significantly reduced the welfare of urban consumers, and compensation for this purpose should be on the agenda.

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References

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Journal of Applied Economics Studies in Iran
Volume 12, Issue 45
April 2023
Pages 203-221

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