Marginal Cost Versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water

45 Pages Posted: 29 Nov 2006  

Anne Briand

University of Rouen

Date Written: November 2006

Abstract

The model simulates on a 20-year horizon, a first phase of increase in the water resource availability taking into account the supply policies by the Senegalese government and a second phase with hydrologic deficits due to demand evolution (demographic growth). The results show that marginal cost water pricing (with a subsidy ensuring the survival of the water production sector) makes it possible in the long term to absorb the shock of the resource shortage, GDP, investment and welfare increase. Unemployment drops and the sectors of rain rice, market gardening and drinking water distribution grow. In contrast, the current policy of average cost pricing of water leads the long-term economy in a recession with an agricultural production decrease, a strong degradation of welfare and a rise of unemployment. This result questions the basic tariff (average cost) on which block water pricing is based in Senegal.

Keywords: Computable General Equilibrium Model, Dynamic, Imperfect Competition, Water, Pricing, Sub Saharan Africa

JEL Classification: C68, O13

Suggested Citation

Briand, Anne, Marginal Cost Versus Average Cost Pricing with Climatic Shocks in Senegal: A Dynamic Computable General Equilibrium Model Applied to Water (November 2006). FEEM Working Paper No. 144.06. Available at SSRN: https://ssrn.com/abstract=946177 or http://dx.doi.org/10.2139/ssrn.946177

Anne Briand (Contact Author)

University of Rouen ( email )

1, rue Thomas Becket
Mont Saint Aignan Cedex
Rouen, 76821
France

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