Fair Access to Urban Water: Designing Population‐Sensitive Connection Fees Through a Welfare‐Informed Ability‐to‐Pay Approach

Setting urban water connection fees is a complex policy problem: Fees must balance affordability, equity, and adequate cost recovery. This study develops a two‐stage framework for setting urban water connection charges in Iran. A bottom‐up engineering model first establishes the full long‐run economic cost of a new connection; a distributive stage then allocates a target provincial average across six city population classes. The distributive stage is stated as a constrained social welfare program and solved exactly; under logarithmic utility, it yields corner solutions rather than a smooth gradient because the fee is a small share of household resources. The recommended schedule is therefore described as what it is: a proportional ability‐to‐pay allocation indexed to city size, whose formal relation to the welfare program is stated explicitly. Revenue neutrality is imposed on a connection‐weighted basis so that the utility collects the intended total rather than an unweighted average of six class fees. Using Household Expenditure and Income Survey data for all 31 provincial capitals, we test rather than assume the population proxy and find an income elasticity of about 0.13 with respect to city size: statistically significant, but explaining a minority of cross‐city variation. Equity claims are correspondingly framed at the intercity level. Applied to a representative province, the schedule is progressive with respect to ability to pay, holds first‐year revenue exactly at the target, and can be adjusted over time using the Consumer Price Index. The approach transfers to other water‐scarce settings under cost‐recovery pressure.