Water Pricing Under Joint Benefits

Abstract

A cubic functional form of an econometric model for residential water demand estimation is used in order to accommodate different price elasticities for different levels of water demand. Precise estimates of these different price elasticities offer a useful tool to water authorities for urban water demand management through price-based policies. Panel estimation methods (fixed and random effects) are employed to estimate model parameters. The results show that a cubic form of the demand equation can provide appropriate estimates of price elasticities for different “consumption groups” of residential customers. In addition, the effect of public awareness and information on water conservation is also evaluated after controlling other parameters affecting demand for water. Thus, another implication of this study is that well-informed consumers, aware of issues of water conservation and of techniques for water efficient use, may be more inclined to reduce their water consumption.