Dynamic models of residential water demand

Abstract

Static, Fisher‐Kaysen, Koyck, flow adjustment (Bergstrom), and stock adjustment econometric models of the demand for residential water are tested for their ability to explain the monthly residential demand for water in Tucson. Marginal price and a second price‐related variable are used in the estimating equations to account for block rates and fixed charges in the water rate schedule. The other independent vari ables are household income and evapotranspiration minus rainfall. The Fisher‐Kaysen model produced very poor statistical results. The estimated long‐run marginal price elasticities of demand varied from −0.266 to −0.705. The short‐run marginal price elasticity estimates varied from −0.179 to −0.358 except for the linear flow adjustment model with a value of −2.226. This unexpected result casts some doubt on the applicability of the flow adjustment model to estimating the price elasticity of demand with monthly data.

The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan

“…The GMM estimates are provided in Table A3 (in the Appendix A), which are similar to our 2SLS estimates. These results are comparable with the earlier studies reported in the existing literature [17,19,24,27,[40][41][42]. The low magnitude elasticity indicates that households have a relatively low share of water spending in their total expenditures.…”

“…Although there is a vast literature focusing on household demand for water in developed economies, until the 1970s most of the studies on residential water demand had been mainly devoted to the United States, where some regions had been affected by periods of severe drought [14][15][16]. In the 1980s, many studies on residential water demand focused on an economic analysis using econometrics methods [17][18][19][20]. In the 1990s, researchers emphasized new insights, such as the adoption of low-flow equipment by households, the welfare consequences of price regulation, and case studies of European countries [21][22][23][24][25].…”

Influence of Price and Rate Structures on Municipal and Industrial Water Use.

“…the other hand, there is no obvious explanation for the differences between Grim' s results and those of other investigators, other than differing price response. Billings and Agthe (1980), Agthe and Billings (1980), and Billings (1982) all included a bill difference variable in their models and all obtained significant negative coefficients for this term. None of the reports indicate the relationship between the value of the bill difference term and marginal price; the elasticity calculations reported do not take such a relationship into account.…”

“…Bill difference was first introduced to residential water use studies by Billings and Agthe in 1980, and most residential studies published since then have incorporated it. However, only one study (Howe 1982) explicitly calculates price elasticity as a function of both marginal price and bill difference coefficients.…”

An annual quasidifference approach to water price elasticity

“…Unfortunately, dynamic studies that have tested the significance of the contemporaneous price variable have found its effect to be insignificant during nonsummer months [Lyman, 1992], inconsistent across models [Agthe and Billings, 1980], and insignificant or unexpectedly close to zero [Carver and Boland, 1980]. Investigations of natural gas [Balestra and Nerlove, 1966] and electricity [Bushnell and Mansur, 2005] have also suffered from weak results.…”