Pricing policies for conservation of water resources and environment

An attempt is made in this study to integrate considerations regarding the quality of the environment and the optimal use of resources. Particular attention is paid to water resources and it is considered how a water environment may be realized where clean water flows abundantly through a public water basin. Several water environmental systems are constructed with characteristics pertaining both to the quantity of water resources and to water quality. Water pricing relevant to these water environmental systems is examined. An area model is first constructed. Instead of an effluent fee (or charge), consumers of water resources should pay a consumption tax which reflects the shadow prices of both the quantity and the quality of water resources. The model is extended to the regional model which can be applied to a region including several cities located along a river. Since there are interarea spillovers, the price of water reflects the shadow prices both of water resources and of the spillovers.