Analysing the Tariff System and Economic Value of Water in Iran’s Industry Sector

Constraints on water resources in Iran and the problems facing the supply of new water resources have led to the increased importance of this input for production. This research, using the Residual method, according to the welfare economics theorem, seeks to estimate the economic value of water as a base for water tariff system for industry. In this way, the industrial data based on two-digit ISIC codes between the years of 2004 to 2013 have been used in this study. Results indicated that the weighted average of the economic value of water in the industrial sector is 87347 Rials/m3 and there is a significant difference between the weighted average of the economic value of water and the average weighted tariff of water. Moreover, the findings showed that the ratio of the economic value to tariff of water has decreased over time. Accordingly, it is suggested that by modifying the pricing approach of this input based on the suggested methodology, the prices will be closer to their optimal values, and also, by setting up the water market, water use productivity in the industries will increase.