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Does marginal price matter? A regression discontinuity approach to estimating water demand

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  • Nataraj, Shanthi
  • Hanemann, W. Michael

Abstract

Although complex pricing schedules are increasingly common among water and electricity providers, it is difficult to determine whether consumers respond to changes in the pricing schedule because price changes are often confounded with simultaneous demand shocks or non-price policies. To overcome this challenge, we exploit a natural experiment - the introduction of a third price block in an increasing block pricing schedule for water - in Santa Cruz, California. Using a regression discontinuity design, we find that consumers do respond to changes in marginal price. Doubling marginal price leads to a 12% decrease in water use (500 cubic feet per bill) among high-use households.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 61 (2011)
Issue (Month): 2 (March)
Pages: 198-212

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Handle: RePEc:eee:jeeman:v:61:y:2011:i:2:p:198-212

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Web page: http://www.elsevier.com/locate/inca/622870

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Keywords: Water demand Increasing block pricing Regression discontinuity;

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References

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  1. James J. Opaluch, 1982. "Urban Residential Demand for Water in the United States: Further Discussion," Land Economics, University of Wisconsin Press, vol. 58(2), pages 225-227.
  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. 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.
  4. Renwick, Mary E. & Green, Richard D., 2000. "Do Residential Water Demand Side Management Policies Measure Up? An Analysis of Eight California Water Agencies," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 37-55, July.
  5. Olmstead, Sheila M. & Michael Hanemann, W. & Stavins, Robert N., 2007. "Water demand under alternative price structures," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 181-198, September.
  6. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
  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. Espey, James A. & Espey, Molly, 2004. "Turning on the Lights: A Meta-Analysis of Residential Electricity Demand Elasticities," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(01), April.
  9. Michael L. Nieswiadomy & David J. Molina, 1991. "A Note on Price Perception in Water Demand Models," Land Economics, University of Wisconsin Press, vol. 67(3), pages 352-359.
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Cited by:
  1. 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).
  2. H. Allen Klaiber & V. Kerry Smith & Michael Kaminsky & Aaron Strong, 2012. "Measuring Price Elasticities for Residential Water Demand with Limited Information," NBER Working Papers 18293, National Bureau of Economic Research, Inc.
  3. 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).
  4. repec:ags:jrapmc:122312 is not listed on IDEAS
  5. Alexandros Polycarpou & Theodoros Zachariadis, 2013. "An Econometric Analysis of Residential Water Demand in Cyprus," Water Resources Management, Springer, vol. 27(1), pages 309-317, January.
  6. Sidibé, Amadou, 2010. "Demand for soil, water and forest conservation in Burkina Faso," Department of Forest Economics publications 2345, Swedish University of Agricultural Sciences, Department of forest economics.
  7. Hendricks, Nathan P. & Peterson, Jeffrey M., 2012. "Fixed Effects Estimation of the Intensive and Extensive Margins of Irrigation Water Demand," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 37(1), April.

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