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Show D SUMMARY Q1 Q2 Qt Quantity Figure 5. Profit maximization with price discrimination. In summary, the theory of excise taxes and user charges suggests that the most efficient approach to collecting user fees to finance additional water resources development programs would be through a full- cost fee rather than through an add- on fee or excise tax. In a competitive pricing situation, rather unlikely for water supply and other water project services, higher charges would alter previous resource allocation, probably in the direction of reduced efficiency. In the more likely monopoly situation, a monopoly position can be used to collect extra revenue, and price discrimination can be used to collect even more. Such additional revenue can be used as capital to finance water resource development. This approach to financing should be more equitable than financing through general tax revenues because having users pay the fixed cost for serving them as a group enhances overall resource allocation efficiency. 12 |