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A relational contract for water demand management
Published in
2013
Volume: 10
   
Issue: 3
Pages: 209 - 215
Abstract
For necessary goods like water, under supply constraints, fairness considerations lead to negative externalities. The objective of this paper is to design an infinite horizon contract or relational contract (a type of long-term contract) that ensures self-enforcing (instead of court-enforced) behaviour by the agents to mitigate the externality due to fairness issues. In this contract, the consumer is induced to consume at firm-supply level using the threat of higher fair price for future time periods. The pricing mechanism, computed in this paper, internalizes the externality and is shown to be economically efficient and provides revenue sufficiency. © 2013 Copyright Taylor and Francis Group, LLC.
About the journal
JournalUrban Water Journal
ISSN1573062X
Open AccessNo
Concepts (5)
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    ECONOMIC THEORY
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    Price dynamics
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    Water demand
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    WATER ECONOMICS
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    Water management