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Estimation of Residential Water Demand with Imprecise Price Perception

  • 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)

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.

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Paper provided by Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS in its series Economics Working Paper Archive (University of Rennes 1 & University of Caen) with number 201233.

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Date of creation: Oct 2012
Date of revision:
Handle: RePEc:tut:cremwp:201233
Contact details of provider: Postal: CREM (UMR CNRS 6211) – Faculty of Economics, 7 place Hoche, 35065 RENNES Cedex
Phone: 02 23 23 35 47
Fax: (33) 2 23 23 35 99
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Order Information: Postal: CREM (UMR CNRS 6211) - Faculty of Economics, 7 place Hoche, 35065 Rennes Cedex - France

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  1. 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.
  2. 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.
  3. Schleich, Joachim & Hillenbrand, Thomas, 2009. "Determinants of residential water demand in Germany," Ecological Economics, Elsevier, vol. 68(6), pages 1756-1769, April.
  4. 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.
  5. 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.
  6. 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.
  7. Arjan Ruijs, 2009. "Welfare and Distribution Effects of Water Pricing Policies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 161-182, June.
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