Residential water demand under block rates: a Portuguese case study
AbstractA residential water demand equation is estimated using a panel data sample of 5 Portuguese local communities and 72 months, corresponding to a total number of 360 observations. Because of the presence of multi-part tariffs, we use as explanatory variables the two common price-related variables: marginal price and difference. To prevent the simultaneity bias from using observed quantities to determine the values of marginal price and difference directly from the rate schedule, we use an instrumental variable approach to create a constant marginal price and difference parameters for each rate structure. The price elasticity value obtained fall within the range of those found in other case studies. Thus, although presenting weak elasticity, price seems to play a role in water demand management. However, we do not confirm the expected influence of difference on residential water demand. This can be a consequence of the complexity of the Portuguese water tariffs and the confusing signs that come from the simultaneous use of fixed quotas and increasing block tariffs. So, it is imperative to clarify water tariffs objectives by reviewing the Portuguese water tariffs design processes.
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Bibliographic InfoPaper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2005-09.
Length: 25 pages
Date of creation: 2005
Date of revision:
Publication status: Published in Water Policy 9(2): 217-230, 2007.
demand; water utilities; pricing policy.;
Find related papers by JEL classification:
- L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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