A Research On The Incentive Price Regulation Of Municipal Sewage Treatment Sector

The marketization reform of China’s sewage treatment sector has been progressing steadily. And the economic regulatory framework of sewage treatment is becoming much more integrated by introducing market competition, reforming ownership structure and formulating price regulatory policies. A scientific pricing mechanism, core of the regulatory framework, is an important foundation of marketization which could motivate sewage treatment enterprises to improve efficiency and save cost. It is of realistic significant to the development of sewage treatment sector and environmental protection.According to the current sewage treatment price management system, the government set a special funds by entrusting water companies to charge dischargers.Then the funds is used to compensate sewage company’s cost and profit at a given price.If the funds doesn’t recover all costs, the government must provide financial subsides.And the given price of sewage treatment services is made on the base of company’s costs itself because of the regional monopoly of sewage treatment sector. So there are two problems of the pricing mechanism above: one is lack of competition motivation,another is the information asymmetry between government and sewage companies.In order to solve those problems, this paper builds a reasonable incentive pricing mechanism that can improve sewage treatment quality and efficiency with the background of the research on government purchase of sewage treatment services. The main research content can be divided into four parts: First, current situation and prominent problems of China’s sewage treatment price regulatory framework; Second,build incentive pricing mechanism that is favorable to sewage treatment industry; Third,study environmental factors that make the sewage enterprises heterogeneous; Fourth, a price-calculating of sewage treatment price in Zhejiang province. Then suggestions on sewage treatment pricing regulatory policy are put forward in the view of the present situation and problems of China’s sewage treatment industry.The study shows big gaps in productivity among sewage treatment firms, serious inversion between production cost and sale price, lacking of incentive and competition among firms under existing pricing mechanism, no discovery mechanism of real cost of sewage treatment firms. In view of this, this paper mainly uses performance-basedyardstick competition pricing model, introducing variates of profit margins, quality factor and incentive intensity. Then build incentive pricing model applied to sewage treatment industry. When running the model, cost of sewage treatment firm can show itself, all the firms in model will saving cost and improve efficiency.There are three possible innovation points as follows:1.The principal-agent theory is used to analyze the prominent problems existing in the current policies of sewage treatment industry. For completing sewage treatment price policy, it needs objective evaluation of the effectiveness of price policies. Some references have did qualitative analysis but lack theoretical mechanism research. This paper theoretically analyses the effects, problems of recent price-setting mechanism and reasons of those problems in the view of principal-agent theory.2. Build performance-based yardstick competition pricing mechanism of China’s sewage treatment sector. The present sewage treatment price regulatory framework focuses on cost pricing mechanism and with it there are series of problems. This paper builds an performance based incentive pricing model and mechanism based on previous theoretical studies and experiences from developed countries. Then on the basis of the model above, this paper design a performance-oriented incentive regulatory framework of sewage treatment industry.3. The three-stage DEA model is used to treat the sewage enterprises heterogeneity.It will be unfair if unified standards applied to all firms’ pricing, because of different natural environment, operating condition, wastewater source. So this paper uses three-stage DEA model to eliminate heterogeneity influence and analyze how these heterogeneous factors affect the cost inputs, which lead to justified yardstick competition and enhance scientificity and universality of incentive price regulation mechanism.