Increasing block tariffs (IBTs), widely used in the developing world, are claimed to produce desirable income transfers, discourage wasteful use, promote economic efficiency, and assure access to sufficient water for basic sanitation. In fact, these claims are either excessive or incorrect. In practice, IBTs are likely to promote inefficiency, inequity, unfairness, net revenue instability, and other negative consequences. An alternative tariff design, a uniform price with rebate (UPR), is presented.
In practice, IBTs are likely to promote inefficiency, inequity, unfairness, net revenue instability, and other negative consequences. An alternative tariff design, a uniform price with rebate (UPR), is presented. A revenue-neutral comparison, using developing country data, shows the UPR to outperform the IBT on all counts, while avoiding certain undesirable aspects of IBTs.
