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Household demand and welfare: implications of water pricing in Cyprus

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  • Hajispyrou, Soteroula
  • Koundouri, Phoebe
  • Pashardes, Panos

Abstract

This paper considers a model of household demand for water in a theoretical framework consistent with fundamental principles of consumer behaviour. It applies this model to individual household data to estimate the price and income elasticities of residential demand for water in Cyprus and evaluate the welfare effects associated with changes in the water pricing system. We find that the current regionally heterogeneous, increasing block-pricing system introduces gross price distortions that are not justified on efficiency grounds. A shift towards uniform marginal cost pricing will eliminate the deadweight loss of the current system. However, its benefits will be distributed in favour of the better-off households.

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Bibliographic Info

Article provided by Cambridge University Press in its journal Environment and Development Economics.

Volume (Year): 7 (2002)
Issue (Month): 04 (October)
Pages: 659-685

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Handle: RePEc:cup:endeec:v:7:y:2002:i:04:p:659-685_00

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  1. R. Martinez-Espiñeira, 2002. "Residential Water Demand in the Northwest of Spain," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 161-187, February.
  2. Henry S. Foster, Jr. & Bruce R. Beattie, 1979. "Urban Residential Demand for Water in the United States," Land Economics, University of Wisconsin Press, vol. 55(1), pages 43-58.
  3. Céline Nauges & Alban Thomas, 2000. "Privately Operated Water Utilities, Municipal Price Negotiation, and Estimation of Residential Water Demand: The Case of France," Land Economics, University of Wisconsin Press, vol. 76(1), pages 68-85.
  4. Michael L. Nieswiadomy & David J. Molina, 1989. "Comparing Residential Water Demand Estimates under Decreasing and Increasing Block Rates Using Household Data," Land Economics, University of Wisconsin Press, vol. 65(3), pages 280-289.
  5. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-97, June.
  6. Lars Gårn Hansen, 1996. "Water and Energy Price Impacts on Residential Water Demand in Copenhagen," Land Economics, University of Wisconsin Press, vol. 72(1), pages 66-79.
  7. Mary E. Renwick & Sandra O. Archibald, 1998. "Demand Side Management Policies for Residential Water Use: Who Bears the Conservation Burden?," Land Economics, University of Wisconsin Press, vol. 74(3), pages 343-359.
  8. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-30, May.
  9. MICHAEL Nieswiadomy & STEVEN L. Cobb, 1993. "Impact Of Pricing Structure Selectivity On Urban Water Demand," Contemporary Economic Policy, Western Economic Association International, vol. 11(3), pages 101-113, 07.
  10. J. E. Schefter & E. L. David, 1985. "Estimating Residential Water Demand under Multi-Part Tariffs Using Aggregate Data," Land Economics, University of Wisconsin Press, vol. 64(3), pages 272-280.
  11. Lewbel, Arthur, 1990. "Full Rank Demand Systems," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 289-300, May.
  12. Graeme Dandy & Tin Nguyen & Carolyn Davies, 1997. "Estimating Residential Water Demand in the Presence of Free Allowances," Land Economics, University of Wisconsin Press, vol. 73(1), pages 125-139.
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Citations

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Cited by:
  1. Katia Karousakis & Phoebe Koundouri, . "A Typology of Economic Instruments and Methods for Efficient Water Resources Management in Arid and Semi-Arid Regions," DEOS Working Papers 0603, Athens University of Economics and Business.
  2. Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).
  3. Phoebe Koundouri, . "Design and Implementation of an Integrated Water Management Approach," DEOS Working Papers 0501, Athens University of Economics and Business.
  4. Ruijs, A. & Zimmermann, A. & van den Berg, M., 2008. "Demand and distributional effects of water pricing policies," Ecological Economics, Elsevier, vol. 66(2-3), pages 506-516, June.
  5. Arjan Ruijs, 2009. "Welfare and Distribution Effects of Water Pricing Policies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 161-182, June.
  6. Worthington, Andrew C., 2010. "Commercial and Industrial Water Demand Estimation: Theoretical and Methodological Guidelines for Applied Economics Research/Estimación de la demanda de agua comercial e industrial: pautas teóricas y," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 28, pages 237-258, Agosto.
  7. Ben Groom & Phoebe Koundouri & Timothy Swanson, . "Cost�benefit analysis and efficient water allocation in Cyprus," DEOS Working Papers 0502, Athens University of Economics and Business.
  8. Groom, Ben & Koundouri, Phoebe & Swanson, Timothy, 2005. "Cost–benefit analysis and efficient water allocation in Cyprus," MPRA Paper 38441, University Library of Munich, Germany.
  9. Ben Groom & Phoebe Koundouri, . "The Economics of Water Resource Allocation: Valuation Methods and Policy Implications," DEOS Working Papers 1137, Athens University of Economics and Business.
  10. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  11. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
  12. Barde, Julia Alexa & Lehmann, Paul, 2013. "Distributional effects of water tariff reforms: An empirical study for Lima, Peru," UFZ Discussion Papers 14/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
  13. Arjan Ruijs, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Working Papers 2007.92, Fondazione Eni Enrico Mattei.

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