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Residential Water Use: Efficiency, Affordability, and Price Elasticity

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  • Ming-Feng Hung

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  • Bin-Tzong Chie
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    Abstract

    In practice, water pricing is the main economic instrument used to discourage the wasteful use of residential water. Owing to considerations of affordability, residential water is systematically underpriced because water is essential for life. Such a low price results in water being used inefficiently. This paper proposes a system that supplements the existing price system with a cap-and-trade measure to reconcile conflicts among the goals of residential water use. It forces all people (independent of income) to be faced with reasonable price signals and to use water efficiently. The poor could, however, gain from trade and afford water. By taking advantage of the agent-based model, a simulation of this system applied to Taipei, Taiwan shows that those with lower income per capita are better off under this system even though the equilibrium price of residential water is higher. The simulated average price elasticity of market demand is −0.449. Copyright Springer Science+Business Media Dordrecht 2013

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    File URL: http://hdl.handle.net/10.1007/s11269-012-0185-z
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    Bibliographic Info

    Article provided by Springer in its journal Water Resources Management.

    Volume (Year): 27 (2013)
    Issue (Month): 1 (January)
    Pages: 275-291

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    Handle: RePEc:spr:waterr:v:27:y:2013:i:1:p:275-291

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    Web page: http://www.springer.com/economics/journal/11269

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    Related research

    Keywords: Residential water; Efficiency; Affordability; Water pricing; Cap and trade; Price elasticity; Agent-based model;

    References

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    Cited by:
    1. Shawei He & Keith Hipel & D. Kilgour, 2014. "Water Diversion Conflicts in China: A Hierarchical Perspective," Water Resources Management, Springer, vol. 28(7), pages 1823-1837, May.

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