Why do Queensland Urban Water Entities Resist the Adoption of User Pays Pricing?

Abstract

This study is motivated by the apparent reluctance of Australian urban water entities to adopt the user pays pricing formula despite strong encouragement by Australian Governments to do so. Elements of contingency theory, political cost theory and transaction cost economics are employed in developing an empirical model to explain the differences between those Queensland urban water entities which have been persuaded to accept Government policy and those which have not. The Queensland urban water entities most resistant to adopting the user pays pricing formula were found to be those which faced the greatest potential economic wealth transfers combined with a less certain revenue base. The findings highlight the potential strategic uncertainty and political nature of the pricing of water and that this policy friction poses for government and regulators attempting to encourage the voluntary adoption of more efficient pricing formulas.