Volumetric water pricing, social surplus and supply augmentation

Quentin Grafton, Long Chu, Tom Kompas, Michael Ward

Research output: Chapter in Book/Report/Conference proceedingChapter (Book)Otherpeer-review

3 Citations (Scopus)


We evaluate the welfare losses of undertaking water supply augmentation in Sydney, Australia with a fixed, regulated water price given weather variability. Stochastic dynamic programming is used to determine dynamically efficient water prices and to estimate the losses in social surplus from premature water supply augmentation. Results show that premature water supply augmentation under the base case reduces the net present value (NPV) of the welfare of households by more than $A 3 billion, or some $A 1,900 NPV per household. While the findings are specific to Sydney, our modeling is of general interest because it could be employed to avoid costly and premature supply augmentation elsewhere.

Original languageEnglish
Title of host publicationUnderstanding and Managing Urban Water in Transition
EditorsQuentin Grafton, Katherine A. Daniell, Celine Nauges, Jean-Daniel Rinaudo, Noel Wai Wah Chan
Place of PublicationDordrecht Netherlands
Number of pages19
ISBN (Electronic)9789401798013
ISBN (Print)9789401798006
Publication statusPublished - 2015

Publication series

NameGlobal Issues in Water Policy
ISSN (Print)2211-0631
ISSN (Electronic)2211-0658


  • Desalination Plant
  • Efficient Price
  • Social Surplus
  • Stochastic Dynamic Programming
  • Water Price

Cite this

Grafton, Q., Chu, L., Kompas, T., & Ward, M. (2015). Volumetric water pricing, social surplus and supply augmentation. In Q. Grafton, K. A. Daniell, C. Nauges, J-D. Rinaudo, & N. W. W. Chan (Eds.), Understanding and Managing Urban Water in Transition (1st ed., pp. 401-419). (Global Issues in Water Policy; Vol. 15). Springer. https://doi.org/10.1007/978-94-017-9801-3_19