An Undergraduate Primer on Quality-Differentiated Demand

This article presents a student exercise on the logic underlying demand for quality-differentiated products. The argument builds and extends on basic constructs from undergraduate microeconomics, developing a linear demand structure to reflect consumer preferences for quality variation and a brief critique of market responses to those preferences that indicates potentially greater efficiency loses under monopoly once the possibility of quality distortions are accounted for. Various policy extensions are noted. These include applications in utility pricing tied to quality variations in service reliability, the potentially disproportionate impact on lower income households of quality distortions created by monopoly practices, and the potential of profligate resource use by monopolies which are shown to favor higher over lower quality products. Following along with the student exercise is a series of instructor notes with references to the scholarly literature and possible elaborations on various aspects of the exercise that instructors may chose to address. JEL Classifications: D4, D41, D42

Locally uniform water utility pricing. Social and economic issues in an emergent policy in France and Italy.

Over the past twenty years, the principles of ‘full-cost recovery’ and ‘the user pays’ have become prominent in water utility pricing across the EU. At the same time, uniform pricing has been introduced by local authorities to boost equality between users in a given territory. Two case studies in France and Italy reveal different processes, depending upon the institutional setting, though in both cases EU regulations exert increasing influence on the water pricing structure. A literature review and study of specific documentation was used to prepare about thirty semi-directive interviews with public owners, private firms, and users’ organizations, all conducted face-to-face. The overview presented here has highlighted several trends common to the two case studies, France and Italy, in line with the EU standardization of water pricing structures. The differences arise from different national regulations and territorial models. Local congruence in pricing clearly accompanies reinforced cooperation between municipalities, promoting the legitimacy and visibility of public authorities but inducing complex economic mechanisms such as cross-subsidies and amendments to delegation agreements.