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Estimation of Residential Water Demand with Imprecise Price Perception

Author

Listed:
  • Marie-Estelle Binet

    (University of Rennes 1 - CREM, UMR CNRS 6211, France)

  • Fabrizio Carlevaro

    (University of Geneva, Department of Economics, Switzerland)

  • Michel Paul

    (CEMOI, University of Réunion, France)

Abstract

Based on a detailed sample of time unbalanced panel data on residential water consumption in the French overseas territory of Réunion, we investigate which water price specification should be included in an econometric analysis of residential water demand. To identify the relevant price variable, we estimate the residential demand function for water using the perceived price methodology developed by Shin (1985). The empirical results support the hypothesis that households respond to the average price perceived from the latest water bill. Households facing an increasing block rate schedule perceive a price of water that is generally lower than its actual marginal price. This conclusion emphasizes the relevance of a marginal price information policy to promote water saving.

Suggested Citation

  • Marie-Estelle Binet & Fabrizio Carlevaro & Michel Paul, 2012. "Estimation of Residential Water Demand with Imprecise Price Perception," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201233, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
    • Handle: RePEc:tut:cremwp:201233
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    References listed on IDEAS

    as
    1. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
    2. Schleich, Joachim & Hillenbrand, Thomas, 2009. "Determinants of residential water demand in Germany," Ecological Economics, Elsevier, vol. 68(6), pages 1756-1769, April.
    3. Andrew C. Worthington & Mark Hoffman, 2008. "An Empirical Survey Of Residential Water Demand Modelling," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 842-871, December.
    4. Arbues, Fernando & Garcia-Valinas, Maria Angeles & Martinez-Espineira, Roberto, 2003. "Estimation of residential water demand: a state-of-the-art review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(1), pages 81-102, March.
    5. Carlevaro, Fabrizio & Schlesser, C. & Binet , M. E. & Paul, M., 2007. "Econometric Modeling and Analysis of Residential Water Demand Based on Unbalanced Panel Data," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 8(4), pages 81-102.
    6. 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.
    7. 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.
    8. 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.
    9. Shin, Jeong-Shik, 1985. "Perception of Price When Price Information Is Costly: Evidence from Residential Electricity Demand," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 591-598, November.
    10. James J. Opaluch, 1982. "Urban Residential Demand for Water in the United States: Further Discussion," Land Economics, University of Wisconsin Press, vol. 58(2), pages 225-227.
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    Cited by:

    1. 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.
    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.

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    More about this item

    Keywords

    billing information; price perception; residential demand for water; time unbalanced panel data;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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