Evidence of cross-subsidy in the Brazilian national sanitation sector and its consequences

Abstract:

This study examined the several occurrences of cross-subsidy in the Brazilian sanitation sector. We perceived its existence among the following groups: consumers, residential, commercial, industrial, and the public sector. The phenomenon also manifests itself under several guises: by level of consumption, since consumers who consume more pay a higher unit cost of water than others; among products, since water services are sometimes subsidized by sewage services; and among localities, for althought the costs of water collection, treatment, and distribution are not uniform among municipalities in a given state, the rates practised in certain cases are the same. As a result, we found that these mechanisms 1) induce superfluous consumption, 2) result in relatively wealthy people being subsidized by their less-favored brethren, and 3) generate intermunicipal conflicts.

Keywords:
cross-subsidy; sanitation; natural monopoly