Water demand under alternative price structures (original) (raw)
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Do Consumers React to the Shape of Supply? Water Demand Under Heterogeneous Price Structures
SSRN Electronic Journal, 2005
Urban water pricing provides an opportunity to examine whether consumers react to the shape of supply functions. We carry out an empirical analysis of the influence of price and price structure on residential water demand, using the most price-diverse, detailed, household-level water demand data yet available for this purpose. We adapt the Hausman model of labor supply under progressive income taxation to estimate water demand under non-linear prices. Ours is the first analysis to address both the simultaneous determination of marginal price and water demand under block pricing and the possibility of endogenous price structures in the cross section. In order to examine the possibility that consumers facing block prices are more price-responsive, all else equal, we test for price elasticity differences across price structures. We find that households facing block prices are more sensitive to price increases than households facing uniform marginal prices. Tests for endogenous price structures cannot rule out a behavioral response to the shape of supply, but suggest that observed differences in price elasticity under supply curves of varying shapes may result, in part, from underlying heterogeneity among utility service areas.
Heterogeneous responses to price: Evidence from residential water consumers
Journal of Environmental Economics and Management, 2021
Public utilities may respond to demand or supply fluctuations by adjusting prices to ration quantity. This approach's efficacy and distributional impacts depend on households' heterogeneous price sensitivity, which we estimate in a market for residential water usage. Our household-level panel data features a large change in marginal water prices and a novel measure of local hydrological stress. Contrary to prior research, we find that heavy-usage households are more price sensitive than other households, and price elasticity is largely invariant to household wealth. * The authors thank Orange Water and Sewer Authority (OWASA) for the use of their data and support, as well as Greg Characklis, Larry Band, Jeffrey Hughes, and Valentin Verdier for helpful comments and suggestions. Financial support was provided by a National Science Foundation grant WSC-1360442: "Designing Robust and Adaptive Water Management Strategies in Regions Transitioning from Abundance to Scarcity." This study was approved by the University of North Carolina IRB (study number 17-2945). OWASA reviewed this paper solely to ensure that we complied with the terms of our confidentiality agreement, which covered the protection of personal information on individual OWASA customers. water demand seasonal elasticities: a stone-geary model under an increasing block rate structure." Land Economics, 93(4): 608-630.
Residential Water Demand and Price Perception under Increasing Block Rates
Economics Bulletin, 2017
We estimate residential water demand for Mexico´s Northern Border state of Nuevo LeA³n using data from the National Household Survey. Employing Shin's (1985) price perception model and instrumental variables (IV) techniques to deal with simultaneity problems, our findings indicate that households in the region respond to a ‘perceived' price which is considerably lower than actual water prices. Elasticity estimates for price and income are consistent with theory and previous findings in the literature.
EFFECT OF PRICE STRUCTURE ON RESIDENTIAL WATER DEMAND
Journal of the American Water Resources Association, 1992
ABSTRACT: Little is known about how different types of municipal water rate structures influence residential water use. Conventional wisdom suggests that increasing block rate structures promote con-servation, but analysis of data from 85 Massachusetts communities does not support ...
Predicting Household Water Consumption Under A Block Price Structure
2004
This study focuses on estimating the variations in per-capita water consumption and predicting the shares of consumption by pricing blocks in eight Kansas regions. Previous studies have considered household or micro-level consumption, but few have focused on aggregate level consumption across different regions. A probit model was used to estimate the consumption shares in individual blocks for each region. Per-capita water consumption varies significantly across the regions and as we move from Western to Eastern Kansas, shares of lower consumption block decrease and higher consumption block likely to increase.
A panel data analysis of commercial customers' water price responsiveness under block rates
Water Resources Research, 2004
1] The existing literature on nonresidential water demand has primarily employed crosssectional models based on time-aggregated data. In this study, we analyze panel data models of commercial water demand that build on monthly observations of water use and marginal prices for individual customers. This allows for a closer investigation of the temporal aspects of commercial water demand. We show that commercial water demand can exhibit strong seasonal patterns. These temporal consumption patterns aggravate simultaneity problems associated with block pricing if they are not explicitly accounted for in demand specifications.
2014
This study investigates the effect of introducing a fiscally neutral increasing block-rate water budget price structure on residential water demand. We estimate that demand was reduced by at least 18 percent, although the reduction was achieved gradually over more than three years. As intermediate steps the study derives estimates of price and income elasticities that rely only on longitudinal variability. We investigate how different subpopulations responded to the pricing change and find evidence that marginal, rather than average, prices may be driving consumption. Additionally, we derive alternative rate structures that might have been implemented, and assess the estimated demand effects of those rate structures.
Muffled Price Signals: Household Water Demand under Increasing-Block Prices
SSRN Electronic Journal, 2002
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2008
This study uses panel data at suburb level to estimates the elasticity water demands in Perth, Australia from 1995 to 2005. After deriving the consumer's water demand under a non-linear budget constraint, we estimate the water demand model, which accounts for how water (and other purchased goods) is used to satisfy fundamental desires of the household. We have applied the specification of price that provided the correctly estimated marginal price from the block tariff structure, and employed a maximum likelihood estimation technique to tackle the endogeneity and heteroskedasticity issues. Our estimation of water demand price elasticities are slightly higher (more elastic) than previous study in Perth, but broadly in line with other estimates in the literature.