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Alternate Price Specifications for Estimating Residential Water Demand with Fixed Fees

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  • R. G. Taylor
  • John R. McKean
  • Robert A. Young

Abstract

Using a new model formulation and data from a sample of Colorado utilities, we investigated the price specification controversy (marginal price versus average revenue) when estimating residential water demand. The improved statistical fit using average revenue as the price variable was shown to be an artifact of the unitary elastic identity created when monthly rate schedules contain a fixed fee. When the fixed fee was purged from the data, average price was not significant, but marginal price remained significant. In the preferred double-log marginal price model, estimated price elasticity was –0.3, and conservation programs had no significant effect on water use.

Suggested Citation

  • R. G. Taylor & John R. McKean & Robert A. Young, 2004. "Alternate Price Specifications for Estimating Residential Water Demand with Fixed Fees," Land Economics, University of Wisconsin Press, vol. 80(3), pages 463-475.
  • Handle: RePEc:uwp:landec:v:80:y:2004:i:3:p:463-475
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    Citations

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    Cited by:

    1. Roberto Martínez-Espiñeira, 2007. "An estimation of residential water demand using co-integration and error correction tec hniques," Journal of Applied Economics, Universidad del CEMA, vol. 10, pages 161-184, May.
    2. Havranek, Tomas & Irsova, Zuzana & Vlach, Tomas, 2016. "Publication Bias in Measuring the Income Elasticity of Water Demand," MPRA Paper 75247, University Library of Munich, Germany.
    3. Henrique Monteiro, 2010. "Residential Water Demand in Portugal: checking for efficiency-based justifications for increasing block tariffs," Working Papers Series 1 ercwp0110, ISCTE-IUL, Business Research Unit (BRU-IUL).
    4. Emma Aisbett & Ralf Steinhauser, 2011. "Does anybody give a dam? The importance of public awareness for urban water conservation during drought," Environmental Economics Research Hub Research Reports 10100, Environmental Economics Research Hub, Crawford School of Public Policy, The Australian National University.
    5. Schleich, Joachim & Hillenbrand, Thomas, 2009. "Determinants of residential water demand in Germany," Ecological Economics, Elsevier, vol. 68(6), pages 1756-1769, April.
    6. Christopher Boyer & Damian Adams & Tatiana Borisova & Christopher Clark, 2012. "Factors Driving Water Utility Rate Structure Choice: Evidence from Four Southern U.S. States," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 26(10), pages 2747-2760, August.
    7. Tomas Havranek & Zuzana Irsova & Tomas Vlach, 2018. "Measuring the Income Elasticity of Water Demand: The Importance of Publication and Endogeneity Biases," Land Economics, University of Wisconsin Press, vol. 94(2), pages 259-283.
    8. Marie-Estelle Binet & Fabrizio Carlevaro & Michel Paul, 2014. "Estimation of Residential Water Demand with Imperfect Price Perception," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(4), pages 561-581, December.
    9. Greg Halich & Kurt Stephenson, 2009. "Effectiveness of Residential Water-Use Restrictions under Varying Levels of Municipal Effort," Land Economics, University of Wisconsin Press, vol. 85(4), pages 614-626.
    10. Ming-Feng Hung & Bin-Tzong Chie, 2013. "Residential Water Use: Efficiency, Affordability, and Price Elasticity," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(1), pages 275-291, January.
    11. Ming-Feng Hung & Bin-Tzong Chie & Tai-Hsin Huang, 2017. "Residential water demand and water waste in Taiwan," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 19(2), pages 249-268, April.
    12. Frondel, Manuel & Kussel, Gerhard & Sommer, Stephan, 2019. "Heterogeneity in the price response of residential electricity demand: A dynamic approach for Germany," Resource and Energy Economics, Elsevier, vol. 57(C), pages 119-134.
    13. Manuel Frondel and Gerhard Kussel, 2019. "Switching on Electricity Demand Response: Evidence for German Households," The Energy Journal, International Association for Energy Economics, vol. 0(Number 5).
    14. Marielle Montginoul, 2007. "Analysing the Diversity of Water Pricing Structures: The Case of France," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 21(5), pages 861-871, May.
    15. Kussel, Gerhard & Frondel, Manuel, 2016. "Switching Response to Power Prices: Evidence from German Households," VfS Annual Conference 2016 (Augsburg): Demographic Change 145728, Verein für Socialpolitik / German Economic Association.
    16. Jordi Honey-Rosés & Claudio Pareja, 2019. "Metrics and Methods for Comparing Water Utility Rate Structures," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-31, April.
    17. Xiaojia Bao, 2016. "Water, Electricity and Weather Variability in Rural Northern China," Working Papers 2014-07-02, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University.
    18. Janine Stone & Christopher Goemans & Marco Costanigro, 2019. "Variation in Water Demand Responsiveness to Utility Policies and Weather: A Latent-Class Model," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 6(01), pages 1-33, September.
    19. Joachim Schleich & Thomas Hillenbrand, 2019. "Residential water demand responds asymmetrically to rising and falling prices," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4973-4981, September.
    20. Xunzhou Ma & Shiqiu Zhang & Quan Mu, 2014. "How Do Residents Respond to Price under Increasing Block Tariffs? Evidence from Experiments in Urban Residential Water Demand in Beijing," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 28(14), pages 4895-4909, November.
    21. Tobarra-González, Miguel Ángel, 2013. "Factores explicativos de la demanda municipal de agua y efectos en el bienestar de la política tarifaria. Una aplicación a la cuenca del Segura/Explicative Factors of Municipal Water Demand and Effect," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 31, pages 577-596, Septiembr.
    22. Ramón Barberán & Fernando Arbués, 2009. "Equity in Domestic Water Rates Design," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 23(10), pages 2101-2118, August.
    23. Schleich, Joachim & Hillenbrand, Thomas, 2019. "Water demand responds asymmetrically to rising and falling prices," Working Papers "Sustainability and Innovation" S03/2019, Fraunhofer Institute for Systems and Innovation Research (ISI).
    24. Halich, Greg & Stephenson, Kurt & Hilmer, Christiana E., 2005. "The Effectiveness of Mandatory and Voluntary Water-Use Restrictions," 2005 Annual meeting, July 24-27, Providence, RI 19327, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

    More about this item

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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