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Estimating the Price Elasticity of Residential Water Demand: The Case of Phoenix, Arizona

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  • James Yoo
  • Silvio Simonit
  • Ann P. Kinzig
  • Charles Perrings

Abstract

Changes in water availability, and hence price, are expected to be amongst the most disruptive effects of climate change in many parts of the world. Understanding the capacity of society or consumers to adapt to such changes requires understanding the responsiveness of water demand to price changes. We estimate the price elasticity of residential water demand in Phoenix, Arizona, which is likely to be strongly impacted by climate change. Most existing approaches to the estimation of water demand functions have limited capacity to isolate the effect of price on water consumption where there is little variation in water price. A recent study by Klaiber et al. (2012) attempts to address this issue by using differences in consumption levels, and weather-related characteristics to isolate the price effect on water demand, and by using a constant term in a differenced regression model. We also estimate a differenced regression model, but include direct measures of changes in water prices. This inclusion successfully isolates the price effect on water demand, and enables us to distinguish between the short- and long-run price elasticity of water demand, and hence the short-and long-run adaptation to changes in water availability.

Suggested Citation

  • James Yoo & Silvio Simonit & Ann P. Kinzig & Charles Perrings, 2014. "Estimating the Price Elasticity of Residential Water Demand: The Case of Phoenix, Arizona," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 36(2), pages 333-350.
    • Handle: RePEc:oup:apecpp:v:36:y:2014:i:2:p:333-350.
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    File URL: http://hdl.handle.net/10.1093/aepp/ppt054
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    Cited by:

    1. Asci, Serhat & Borisova, Tatiana, 2014. "The Effect of Price and Non-Price Conservation Programs on Residential Water Demand," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170687, Agricultural and Applied Economics Association.
    2. Massarutto, Antonio, 2020. "Servant of too many masters: Residential water pricing and the challenge of sustainability," Utilities Policy, Elsevier, vol. 63(C).
    3. García-López, Marcos & Montano, Borja & Melgarejo, Joaquín, 2022. "Alternative tariff structures and household composition: Evidence from Spain's Valencia region," Utilities Policy, Elsevier, vol. 79(C).
    4. Michael O'Donnell & Robert P. Berrens, 2018. "Understanding Falling Municipal Water Demand in a Small City Dependent on the Declining Ogallala Aquifer: Case Study of Clovis, New Mexico," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(04), pages 1-40, October.
    5. Younes Ben Zaied & Marie Estelle Binet, 2015. "Modelling seasonality in residential water demand: the case of Tunisia," Applied Economics, Taylor & Francis Journals, vol. 47(19), pages 1983-1996, April.
    6. Michalis Skourtos & Dimitris Damigos & Areti Kontogianni & Christos Tourkolias & Alistair Hunt, 2019. "Embedding Preference Uncertainty for Environmental Amenities in Climate Change Economic Assessments: A “Random” Step Forward," Economies, MDPI, vol. 7(4), pages 1-22, October.
    7. Brandli Stitzel & Cynthia L. Rogers, 2022. "Residential Water Demand Under Increasing Block Rate Structure: Conservation Conundrum?," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 36(1), pages 203-218, January.
    8. Yarela Flores Arévalo & Roberto D. Ponce Oliva & Francisco J. Fernández & Felipe Vásquez-Lavin, 2021. "Sensitivity of Water Price Elasticity Estimates to Different Data Aggregation Levels," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 35(6), pages 2039-2052, April.
    9. Asci, Serhat & Borisova, Tatiana & Dukes, Michael D., 2015. "Price- and Non-Price Water Demand Management Strategies for Water Utilities," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196768, Southern Agricultural Economics Association.
    10. Arthur Dassan & Joelson Oliveira Sampaio & Vinicius Augusto Brunassi Silva & Rodrigo De-Losso, 2021. "Private Means Better? A Water and Sanitation Quasi-experimental Design," Working Papers, Department of Economics 2021_22, University of São Paulo (FEA-USP).
    11. René Cabral & Luciano Ayala & Victor Hugo Delgado, 2017. "Residential Water Demand and Price Perception under Increasing Block Rates," Economics Bulletin, AccessEcon, vol. 37(1), pages 508-519.

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