Estimation of Residential Water Demand with Imprecise Price Perception
AbstractBased on a detailed sample of time unbalanced panel data on residential water consumption in the French overseas territory of Réunion, we investigate which water price specification should be included in an econometric analysis of residential water demand. To identify the relevant price variable, we estimate the residential demand function for water using the perceived price methodology developed by Shin (1985). The empirical results support the hypothesis that households respond to the average price perceived from the latest water bill. Households facing an increasing block rate schedule perceive a price of water that is generally lower than its actual marginal price. This conclusion emphasizes the relevance of a marginal price information policy to promote water saving.
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Bibliographic InfoPaper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201233.
Date of creation: Oct 2012
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Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
- Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
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