According to the EU water framework directive 2000/60, water tariffs should be based on the
full cost recovery principle, including scarcity and external effects. To disregard these two aspects is
not only conceptually misleading, as we try to show, but also leads to a wrong, distorted tariff. Our
attempt to measure such distortion with respect to the italian case shows, for example, that water tariffs
should be up to three times higher than the actual ones. That is to say, a significant correction
in water prices is needed to achieve efficiency.