Efficiency, perceived prices, and household water demand: A stochastic frontier analysis for the Spanish city of Gijón

In the current context of pressure on available water resources, sustainable patterns of water consumption emerge as an important matter of concern. In this sense, efficient consumption is usually understood as the optimal usage of the available resources. Thus, we study households' efficiency levels by considering a stochastic frontier analysis of the demand for water services using a representative sample of a northern city in Spain. Besides, efficient consumption habits require a costly acquisition of accurate information, whether in terms of prices or the effective demand of a given resource. Thus, we also study the impact of several determinants on the efficiency levels of water demand, as in Hung et al. (2017). These range from the deviations between perceived and real prices to social characteristics such as the average age of households or their degree of environmental awareness. We find strong evidence in favor of higher efficiency levels among more informed households which also commit themselves to the environment. The relevance of this research to the current state of the empirical literature is twofold: first, it expands the number of scarce analyses on stochastic frontiers of residential water demand; second, it contributes to a better understanding of the importance of accurate information on optimal decisions of consumers. Moreover, we use a novel and exclusive database for a representative sample of households in the city of Gijón (Spain) between 2017 and 2021, where we combine real data on water prices and consumption with consumer perceptions obtained from a survey.