The impact of reforming municipal water tariff on water rationing and consumer welfare in Saudi Arabia

The objectives of this study were to estimate an aggregate price elasticity of demand for municipal water in Saudi Arabia, and to analyze the welfare impact of raising the municipal water tariff. The study utilized available aggregated data (Ministry of Water and Electricity, 1999–2008), and regression techniques to specify water demand functions within the frame of the increasing block tariff applied in Saudi Arabia. The estimated price elasticity of municipal water demand was about –0.39. The impact of an assumed 33% rise in the municipal water tariff was predicted to save about 11.121 cubic meters per household per month, which would lead to a total annual saving of about 128.544 million cubic meters. The percentage increase of the average equilibrium price would reach 12.7%. Therefore, the percentage decrease in consumer surplus per household amounts to 9.43%.