The nonlinear progressive water pricing policy in Tunisia: Equity and efficiency

Economic theory and recent empirical evidence show that nonlinear progressive water pricing policies are the most useful tool to reduce water demand in water stressed countries (Olmstead, 2010). Using panel cointegration tests, Pedroni (1999), and a breakdown into two consumption blocks (a lower and an upper block), we show, using data from the Tunisian water regulator for 26 years, that increasing block tariffs have been successful in managing scarce water in Tunisia. We observe that in the long run, consumption in the upper block decreases when price increases, while in the lower block, which is composed essentially of low-income households characterized by inelastic water demand, demand is less elastic to price changes. This paper calls for the implementation of nonlinear progressive pricing to reduce demand by large consumers in order to promote efficiency in use and to promote the access of poor consumers to the resource in order to promote equity