In their new paper, NOUS member Andreas Polk and Michael Hellwig explain water prices in Germany by analyzing demand and cost drivers, governance structures and political links to local politicians. First, they find evidence for economies of scope between supply and wastewater treatment. Soil rigidity significantly influences water prices, and prices tend to be higher in municipalities with declining populations. Second, they analyze governance structures and political links between local mayors and water utilities. They find weak indication that these factors influence prices. The existence of multiple political interests in the governance bodies overseeing water utilities tends to coincide with higher prices. As most of our governance and many of our political factors lack statistical significance, they conclude that it is mainly cost and demand factors that determine prices, and political links play a minor role.
The full paper is available online.