The Water Framework Oirective and Portuguese Water L.aw require that water prices provide an appropriate incentive for efficient resource use as well as recover costs, including environmental and scarcity costs. Nonetheless, recent evaluations  (EC07) show that economic instruments still play a limited role in water management, while significant problems persist in ecological water status. The European Commission has thus identified the promotion of economic instruments, and pricing in particular, as a priority action.  ln this project we will develop a thorough and innovative analysis of prices in the water sector, including behavioural responses and considering the relevant features of costs, in order to identify policies that allow a balance between welfare maximization, including environmental constraints, and other traditional criteria for utility pricing, such as cost recovery, equity and simplicity. The project will build on previous contributions of the research team in the areas of nonlinear pricing, water demand and cost estimation, while applying new theoretical methods and developing additional empirical dimensions, as described below.  There is a significant amount of literature on pricing structures in regulated utilities, yet none of it explains the popularity of increasing block tariffs (!BT} in the water sector, since the nature of the supply infrastructure points to constant or decreasing tariffs (EI0l, EI09). ln previous work (RoMo08) we have already shown that increasing marginal prices may nonetheless come about as a combined result of water scarcity and customer heterogeneity if utilities are required to maintain a balanced budget. Additional insights will come from this project, where we will develop theoretical work on the behavioural responses of consumers to price structure, using asymmetrical value functions with loss aversion (TvKa91). ln particular, we will look for framing effects, as initial blocks may provide consumers with referen...