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Nudges for Economics of Water Tariffs

Project Coordinator:

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Paul Michel - michel.paul(at)univ-reunion.fr

Institutions: CEMOI - University of La Réunion

Country: France

Abstract

logo.JPGThe research program addresses the issue of household water demand management. Prima facie, it aims to provide a socio-economic assessment of green nudging policies, focusing on water consumption controlling and proper understanding of the charging system by the households, taking into account adjustments in the pricing policy that nudges may generate (in view of their effects on water demand functions). From an operational point of view, it consists in developing a micro-simulation model, based on econometric estimates of household water demands, to assess the socio-economic returns of mix policies, combining nudges and pricing instruments, and identify financially sustainable DSM (demand-side management) policies to improve current water utility tariffs. The program is designed around various methodologies. The effects of nudges on household water consumptions are examined through the realization of controlled experiments, in the lab and in the field. Randomized controlled trials are performed in Gijon (Spain), Saint Paul (Reunion Island - France) and Sfax (Tunisia). Econometric estimations of residential water demand are carried out to measure basic water needs of the households, price-sensitivities of demand and perceived prices of water. Econometric exercises are implemented before and after the nudging campaigns, in order to infer the effects of BIs (behavioral interventions) on the latter three factors and identify the transmission channels through which nudges modify the water demand functions of the households. This knowledge about the water demand functions, as provided by econometric analysis, combined with databases used their estimation enables (i) to assess the socio-economic performance of the tariff; (ii) to infer the effects of nudges on this socio-economic performance; (iii) to identify optimal policies, according to well-defined decision criteria for local public decision-makers, in various analytical and regulatory frameworks. This evaluation process is carried out through a scoreboard and the use of appropriate indicators in accordance with the objectives of EU Water Framework Directive (affordability, incentive character of pricing, equity, economic welfare and quality of funding). In fine, all of these elements articulate to construct a DST (decision support tool) that can be used to inform decision-making about Water Utility DSM policy. Simplified version of the DST will be posted on line.

Funders of the project:

Agence Nationale de la Recherche (ANR) - France

Water Research Commission (WRC) of South Africa - South Africa

Ministerio de Economía, Industria y Competitividad (MINECO) - Spain

Agencia Estatal de Investigación (AEI) - Spain  

Ministry of Higher Education and Scientific Research (MHESR) - Tunisia