Water Pricing Schemes: An Agent-Based Simulation

Abstract One way to address water scarcity could be to shift from flat or uniform rates to block tariffs. Empirical studies evaluating the effect of block rates on water conservation, however, surprisingly yield mixed results. To better understand the effects of block pricing on water conservation, we developed an agent-based model of a water market and calibrated it using German data. Our simulations show that water consumption increases compared to using uniform rates when a decreasing block rate is introduced and decreases when an increasing block rate is introduced. Moreover, block pricing has distributional consequences as measured by households’ water bills. We also evaluate the effect of pricing schemes on water consumption and households’ water bills under changing price elasticities, a shrinking population, and more hot days.