Different Environmental Services for Different Income Groups in LDC Cities: Second-Best Efficiency Arguments

Abstract

The conventional arguments for providing basic environmental services to the poor in less developed country (LDC) cities run to externalities and merit-goods. These arguments urge that cities make some kind of basic service available to the poor because they will otherwise suffer socially unacceptable consequences to themselves and/or impose negative externalities on others. We offer different kinds of arguments for providing basic environmental services to the poor in LDC cities: second-best efficiency arguments. When the poor are many and very poor, the city may maximize social welfare, within a budget constraint, by offering two kinds of basic services to its residents, a first-class service that the rich will want and a second-class service that the poor will be able to afford. the cases considered here can be added to the well-known merit-good and externality arguments. These arguments also give a theoretical foundation to the growing practice of offering different classes of service at different prices to different income groups in LDC cities.