Servant of too many masters: Residential water pricing and the challenge of sustainability

This paper discusses the state-of-the-art of the economic debate around water pricing, focussing on residential water supply and sanitation. Water pricing lays at the crossroads of many fields of economic analysis, and may be used to address many different problems: efficient allocation of water resources, ecological sustainability, guarantee of social rights, financial viability of investments. Different problems require different approaches and solutions. Rather than a “magic stick” that solves all problems by simply “getting the price right”, water charges must be seen as one of the many levers that policymakers can use: possibly a very effective one, but keeping in mind that it cannot solve all problems at the same time. Diversely from a simplistic interpretation of mainstream economics, deeply rooted in the European water policy, full-cost recovery and economic efficiency, social and ecological sustainability are separate issues that must not be confounded. This statement leads the way to a wider and more creative use of public finance.