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close this bookTowards Sustainable Water Resources Management - A Strategic Approach (European Commission, 1998, 351 pages)
close this folderPart III: Aids for the application of the strategic approach
close this folderChapter 12: Glossary of key concepts
View the document(introduction...)
View the documentAppropriate modern technology
View the documentAwareness raising
View the documentBasic needs/Basic services
View the documentBeijing Global Platform for Action
View the documentCapacity building
View the documentClean technology
View the documentCommunications techniques
View the documentDecentralised co-operation
View the documentDemand management
View the documentEconomic and financial analysis
View the documentEcosystem management
View the documentEnvironmental analysis
View the documentEnvironmental economic valuation
View the documentEnvironmental sanitation
View the documentGender
View the documentHygiene (or health) education
View the documentIndigenous Technical Knowledge (ITK)
View the documentIntegrated water resources management
View the documentInternational water law
View the documentKnowledge, Attitude and Practice (KAP) studies
View the documentMarginal cost pricing
View the documentMetering
View the documentMonitoring Indicators
View the documentParticipation
View the documentParticipatory Appraisal
View the documentParticipatory Irrigation Management (PIM)
View the documentParticipatory Technology Development (PTD)
View the documentPolicy Review
View the document'Polluter pays' principle
View the documentPrivate sector participation
View the documentRamsar Convention
View the documentRegulatory systems
View the documentRe-use and recycling of water
View the documentRiver Basin Organisations (RBOs)
View the documentSocial data collection
View the documentSocial Impact Assessment (SIA)
View the documentStakeholders
View the documentSocial mobilisation
View the documentSubsidiarity principle
View the documentTariffs
View the documentTariff structures
View the documentTransboundary waters
View the documentVirtual water
View the documentWater-borne diseases
View the documentWater laws and legislation
View the documentWater Markets
View the documentWater ownership
View the documentWater quality standards
View the documentWater User Associations
View the documentWillingness-to-pay (WTP) surveys

Marginal cost pricing

'Marginal cost pricing' expresses the theory that the net benefits of an economic activity are maximised when prices are equal to the marginal cost of production. This is because prices measure consumers' marginal willingness to pay, and therefore the value, of a commodity or service. The marginal cost is the quantity of resources, which must be employed to produce a single extra unit of the commodity. When price equals marginal cost, it indicates that the cost of the marginal unit of production is just equal to, and therefore justified by, the value of the extra consumption. In the case of water resources, the 'cost of production' should be interpreted to include the impact on the environment. Damage to the environment can lower welfare directly (e.g. through reduced amenity), or indirectly, through the need to spend more on water treatment. Also, any current use must reduce the amount of water available for use in future periods. This would apply to any store of water, such as an aquifer or lake, being used in excess of its recharge rate. Continued exploitation must at some time lead to exhaustion. Hence, current use of the resource has an opportunity cost which is the cost of use foregone in the future. Various formulae exist on which marginal cost pricing policies can be based, which take into account the indivisibilities, which are a feature of water resources, investment. Further information: Pricing of Water Services. OECD, 1987.