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Perceived price in residential water demand: Evidence from a natural experiment

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  • Wichman, Casey J.

Abstract

Under complicated billing structures, the price to which consumers respond remains inconclusive. In this paper, I exploit a quasi-experiment to estimate a causal effect of price for residential water customers during the introduction of increasing block rates for a North Carolina utility. Perceived price is identified through a billing anomaly in which changes in marginal and average prices move in opposite directions. Empirical results contribute evidence that residential water customers respond to average price. Average price elasticity estimates vary from −0.43 to −1.14 across the distribution of consumption in triple-difference models, with an estimate of −0.31 in the tightest bandwidth of regression discontinuity specifications.

Suggested Citation

  • Wichman, Casey J., 2014. "Perceived price in residential water demand: Evidence from a natural experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 308-323.
    • Handle: RePEc:eee:jeborg:v:107:y:2014:i:pa:p:308-323
    DOI: 10.1016/j.jebo.2014.02.017
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    More about this item

    Keywords

    Water demand; Price elasticity; Difference-in-difference-in-difference; Regression discontinuity; Perceived price;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods

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