Endogenous and Environmental Determinants of Water Pricing Policy in Italy

Abstract

A water pricing policy (WPP) should accomplish many purposes. Due to the growing importance of efficient water management, it has become crucial to understand the endogenous and environmental factors affecting water pricing, so as to provide guidance to policy makers in defining a suitable water management framework and in entrusting the service to those water utilities that are better inclined to fulfill the purposes of the WPP. Using multiple linear regression model with robust standard errors, this paper analyzes if and how some relevant variables affect the tariff levied by water utilities. Italy is considered a particularly appropriate case study, since the country characterized by diverse geographical features and is home to water utilities with differing characteristics. The results show a positive relationship between the tariff level and the realized investment per inhabitant. Furthermore, the paper shows a negative relationship between the tariff level and the average annual rainfall. Consistent with the environmental characteristics, the data show that tariffs are lowest in the north of Italy. Significantly, publicly owned companies levy lower tariffs than mixed and private utilities. Finally, neither firm size and diversification strategies show a significant relationship with the tariff level.