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Price Responsiveness of Residential, Industrial and Commercial Water Demand in Sri Lanka

Author

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  • Dinusha Dharmaratna
  • Jaai Parasnis

Abstract

Appropriate pricing of water is critical for improving the efficiency of pipe-borne water supply systems in many developing countries. However, existing literature on residential, industrial and commercial water demand has primarily focused on developed countries. This paper estimates the demand for pipe-borne water from residential, industrial and commercial sectors in Sri Lanka. Price elasticity for residential consumers ranges from -0.06 to -0.58 and the income elasticity varies from 0.04 to 0.13. For industrial and commercial sectors, price is not a significant variable in determining water demand. These findings suggest that price increases, in isolation, may not substantially reduce the demand for water and hence have limited role in demand management. However, the inelastic nature of water demand can enable the water utility to improve its financial viability and revenues. The paper provides the empirical foundations for pipe-borne water planning and policies making in developing countries.

Suggested Citation

  • Dinusha Dharmaratna & Jaai Parasnis, 2010. "Price Responsiveness of Residential, Industrial and Commercial Water Demand in Sri Lanka," Monash Economics Working Papers 44-10, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2010-44
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2010/4410pricedharmaratnaparasnis.pdf
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    Cited by:

    1. repec:ipg:wpaper:2014-484 is not listed on IDEAS
    2. 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.
    3. Shyama Ratnasiri & Clevo Wilson & Wasantha Athukorala & Maria A. Garcia-Valiñas & Benno Torgler & Robert Gifford, 2018. "Effectiveness of two pricing structures on urban water use and conservation: a quasi-experimental investigation," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(3), pages 547-560, July.
    4. Abeysekara, Walimuni Chamindri Sewanka Mendis & Siriwardana, Mahinda & Meng, Samuel, 2023. "Economic consequences of climate change impacts on the agricultural sector of South Asia: A case study of Sri Lanka," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 435-450.

    More about this item

    Keywords

    water demand; water pricing; block pricing; Sri Lanka;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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