Ramsey Pricing for Cost Recovery Applied to Reservoir Infrastructure in Andalucía (Spain)

Abstract

This paper proposes the Ramsey pricing methodology as a useful tool for water managers. As a case study, first we propose an alternative calculation of the annual depreciation charge for the investment in water infrastructure to that currently made by public administration, and then we apply the Ramsey contribution to the calculation of the price or regulatory tariff charged in 2009 by the Guadalquivir River Basin Authority (Andalucía, Spain) for providing water for urban supply and irrigation. According to Ramsey’s formula, its greatest effect is felt by domestic users, whose demand is relatively inelastic, compared to those whose demand is for agricultural purposes.