Iranian Journal of Public Policy

Iranian Journal of Public Policy

Analysis of Modern Water Pricing Methods for Drinking and Agricultural Water for Policy Design of Water in Iran

Document Type : Review Article

Author
Assistant Professor of Economics, Faculty of Economics, Allameh Tabataba’i University, Tehran, Iran
10.22059/jppolicy.2026.409264.2843
Abstract
This study examines alternative water pricing models with the aim of identifying an optimal pricing framework. An analysis of the literature and international experiences shows that, surprisingly, multiple objectives—such as cost recovery, economic efficiency, equity, and affordability—can be addressed simultaneously through appropriate tariff design. The findings suggest that simple volumetric pricing is effective in managing water consumption, particularly under varying geographic and seasonal conditions, while fixed charges are better suited to covering fixed supply costs. In addition, targeted income-support mechanisms, such as discounts for low-income households, can protect affordability without distorting price signals. From a pricing-level perspective, water scarcity values should be incorporated alongside accounting costs. In this regard, indirect price signaling from agricultural raw water markets may provide useful information, despite institutional challenges. Overall, the results highlight the importance of designing simple, dynamic, and regionally adapted pricing schemes to achieve a sustainable, equitable, and implementable water pricing policy.
Keywords

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