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.
