Are price strategies effective in managing demand of high residential water users?

Price and Behavioural Signals to Encourage Household Water Conservation: Implications for the UK

“…While many studies obtain short-run measures of IBTs' effectiveness, there are reasons to believe IBTs are more effective over the longrun. Empirical findings show price sensitivity is significantly higher in the long-run (Espey et al 1997;Sebri 2014), mainly due to information accessibility and water-related investments by households (Carver and Boland 1980), while water use habits may take a long time to change (Gregory and Di Leo 2003;Asci et al 2017). Illustrating the role of time, Baerenklau et al (2014) investigate an IBT's effects in southern California finding water demand was 17% lower than under a uniform price, however, the reduction occurred gradually over more than three years.…”

“…Renwick and Archibald (1998) find low-income households to be five times more responsive to water price changes than high-income households. If under the uniform price, p u , there are consumers who consume less than w 1 , an IBT which lowers the price for the first block is likely to increase these consumers' consumption (Wichman 2014;Asci et al 2017). Consequently, prices for subsequent blocks, where households are relatively less price sensitive, may have to exceed p u very significantly, otherwise total demand would increase.…”

“…Among developed countries, IBTs are widely used in the US (Olmstead et al 2007;Asci et al 2017), 20 some parts of the Europe, such as Spain (Arbués and Barberán 2012;Suárez-Varela et al 2015) and Portugal (Monteiro 2010), and parts of Australia including Melbourne, Perth and Sydney (Brennan 2006). Unsurprisingly, these areas are associated with an existing high drought risk.…”

“…First, the high blocks must have sufficiently high prices, especially when non-essential water consumption lies mainly in high-income households. Second, there needs to be frequent adjustment of blocks' sizes and prices to reflect changing environmental and socio-economic conditions (Nataraj and Hanemann 2011; Asci et al 2017). Third, season, weather and outdoor water use are correlated, resulting in seasonality in residential water demand, which in some countries is found to influence price elasticity estimates significantly (Espey et al 1997;Worthington and Hoffman 2008).…”

“…The literature, e.g Hall (2009). Wichman (2014) andAsci et al (2017), shows the number of blocks varies considerably across regions. For example, in the US, a two-block tariff is used in Los Angeles, four blocks are used in Arizona, California and Florida, and five blocks are used in North Carolina.…”