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Household demand and welfare: implications of water pricing in Cyprus

Author

Listed:
  • Soteroula Hajispyrou
  • Phoebe Koundouri
  • Panos Pashardes

Abstract

This paper considers a model of household demand for water in a theoretical framework consistent with funtamendal principles of comsumer behaviour. It applies this model to individual household data to estimate the price and income elasticities of residential demand for water in Cyprus and evaluate the welfare effects associated with changes in the water pricing system. We &nd that the current regionally heterogeneous increasing block pricing system in the island introduces gross price distortions that are not justi&ed either on efficiency or equity grounds. A shift towards uniform marginal cost pricing will eliminate the deadweight loss of the current system. However, its bene&ts will be distributed in favour of the better off households. Overall, price can be an effective tool for residential water demand management, however, it may also lead to socially undesirable distributional effects on households.

Suggested Citation

  • Soteroula Hajispyrou & Phoebe Koundouri & Panos Pashardes, "undated". "Household demand and welfare: implications of water pricing in Cyprus," DEOS Working Papers 0201, Athens University of Economics and Business.
  • Handle: RePEc:aue:wpaper:0201
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    References listed on IDEAS

    as
    1. R. Martinez-Espiñeira, 2002. "Residential Water Demand in the Northwest of Spain," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(2), pages 161-187, February.
    2. Lewbel, Arthur, 1991. "The Rank of Demand Systems: Theory and Nonparametric Estimation," Econometrica, Econometric Society, vol. 59(3), pages 711-730, May.
    3. Mary E. Renwick & Sandra O. Archibald, 1998. "Demand Side Management Policies for Residential Water Use: Who Bears the Conservation Burden?," Land Economics, University of Wisconsin Press, vol. 74(3), pages 343-359.
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    6. MICHAEL Nieswiadomy & STEVEN L. Cobb, 1993. "Impact Of Pricing Structure Selectivity On Urban Water Demand," Contemporary Economic Policy, Western Economic Association International, vol. 11(3), pages 101-113, July.
    7. Graeme Dandy & Tin Nguyen & Carolyn Davies, 1997. "Estimating Residential Water Demand in the Presence of Free Allowances," Land Economics, University of Wisconsin Press, vol. 73(1), pages 125-139.
    8. Lars Gårn Hansen, 1996. "Water and Energy Price Impacts on Residential Water Demand in Copenhagen," Land Economics, University of Wisconsin Press, vol. 72(1), pages 66-79.
    9. Henry S. Foster, Jr. & Bruce R. Beattie, 1979. "Urban Residential Demand for Water in the United States," Land Economics, University of Wisconsin Press, vol. 55(1), pages 43-58.
    10. Blundell, Richard & Pashardes, Panos & Weber, Guglielmo, 1993. "What Do We Learn About Consumer Demand Patterns from Micro Data?," American Economic Review, American Economic Association, vol. 83(3), pages 570-597, June.
    11. Céline Nauges & Alban Thomas, 2000. "Privately Operated Water Utilities, Municipal Price Negotiation, and Estimation of Residential Water Demand: The Case of France," Land Economics, University of Wisconsin Press, vol. 76(1), pages 68-85.
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    Citations

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    Cited by:

    1. 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).
    2. Ben Groom & Phoebe Koundouri, "undated". "The Economics of Water Resource Allocation: Valuation Methods and Policy Implications," DEOS Working Papers 1137, Athens University of Economics and Business.
    3. Lehmann, Paul, 2011. "Making water affordable to all: A typology and evaluation of options for urban water pricing," UFZ Discussion Papers 10/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    4. Groom, Ben & Koundouri, Phoebe & Swanson, Timothy, 2005. "Cost–benefit analysis and efficient water allocation in Cyprus," MPRA Paper 38441, University Library of Munich, Germany.
    5. Li, Yao & Fan, Jin & Zhao, Dingtao & Wu, Yanrui & Li, Jun, 2016. "Tiered gasoline pricing: A personal carbon trading perspective," Energy Policy, Elsevier, vol. 89(C), pages 194-201.
    6. Katia Karousakis & Phoebe Koundouri, "undated". "A Typology of Economic Instruments and Methods for Efficient Water Resources Management in Arid and Semi-Arid Regions," DEOS Working Papers 0603, Athens University of Economics and Business.
    7. Worthington, Andrew C., 2010. "Commercial and Industrial Water Demand Estimation: Theoretical and Methodological Guidelines for Applied Economics Research/Estimación de la demanda de agua comercial e industrial: pautas teóricas y m," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 28, pages 237-258, Agosto.
    8. Arjan Ruijs, 2009. "Welfare and Distribution Effects of Water Pricing Policies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 161-182, June.
    9. René Cabral & Luciano Ayala & Victor Hugo Delgado, 2017. "Residential Water Demand and Price Perception under Increasing Block Rates," Economics Bulletin, AccessEcon, vol. 37(1), pages 508-519.
    10. Yerushalmi, Erez, 2012. "Measuring the administrative water allocation mechanism and agricultural amenities," The Warwick Economics Research Paper Series (TWERPS) 992, University of Warwick, Department of Economics.
    11. 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.
    12. repec:spr:waterr:v:32:y:2018:i:2:d:10.1007_s11269-017-1818-z is not listed on IDEAS
    13. Ruijs, A. & Zimmermann, A. & van den Berg, M., 2008. "Demand and distributional effects of water pricing policies," Ecological Economics, Elsevier, vol. 66(2-3), pages 506-516, June.
    14. Phoebe Koundouri, "undated". "Design and Implementation of an Integrated Water Management Approach," DEOS Working Papers 0501, Athens University of Economics and Business.
    15. Renzetti, Steven & Dupont, Diane P. & Chitsinde, Tina, 2015. "An empirical examination of the distributional impacts of water pricing reforms," Utilities Policy, Elsevier, vol. 34(C), pages 63-69.
    16. Arjan Ruijs, 2007. "Welfare and Distribution Effects of Water Pricing Policies," Working Papers 2007.92, Fondazione Eni Enrico Mattei.
    17. Barde, Julia Alexa & Lehmann, Paul, 2013. "Distributional effects of water tariff reforms: An empirical study for Lima, Peru," UFZ Discussion Papers 14/2013, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (ÖKUS).
    18. Ben Groom & Phoebe Koundouri & Timothy Swanson, "undated". "Cost�benefit analysis and efficient water allocation in Cyprus," DEOS Working Papers 0502, Athens University of Economics and Business.
    19. Teresa Torregrosa & Martín Sevilla & Borja Montaño & Victoria López-Vico, 2010. "The Integrated Management of Water Resources in Marina Baja (Alicante, Spain). A Simultaneous Equation Model," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 24(14), pages 3799-3815, November.

    More about this item

    Keywords

    Residential water demand; increasing block pricing; consumer welfare; water management;

    JEL classification:

    • D - Microeconomics
    • D6 - Microeconomics - - Welfare Economics
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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