A Note on Price Perception in Water Demand Models

Nieswiadomy, Michael; Molina, David J.

doi:10.2307/3146430

Cited by 89 publications

(88 citation statements)

References 15 publications

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“…However, many of these programs -such as a prohibition on watering on consecutive days, or a discount for installing low-flow toiletsare difficult to measure quantitatively, and are often included in demand specifications as dummy variables (see, for example, Renwick & Archibald, 1998;Renwick & Archibald, 2000). 3 Several empirical tests that distinguish between responses to marginal and average price have been developed (Opaluch, 1982;Shin, 1985;and Nieswiadomy & Molina, 1991), but the results are not conclusive. Shin (1985) studies electricity demand under a decreasing bock pricing (DBP) system and finds that consumers react to average price; Nieswiadomy and Molina (1991) analyze water demand and find that consumers faced by DBP systems react to average price, but consumers faced by IBP systems react to marginal price.…”

Section: Introductionmentioning

confidence: 99%

“…3 Several empirical tests that distinguish between responses to marginal and average price have been developed (Opaluch, 1982;Shin, 1985;and Nieswiadomy & Molina, 1991), but the results are not conclusive. Shin (1985) studies electricity demand under a decreasing bock pricing (DBP) system and finds that consumers react to average price; Nieswiadomy and Molina (1991) analyze water demand and find that consumers faced by DBP systems react to average price, but consumers faced by IBP systems react to marginal price.…”

Section: Introductionmentioning

confidence: 99%

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Does marginal price matter? A regression discontinuity approach to estimating water demand

Nataraj

Hanemann

2011

Journal of Environmental Economics and Management

113

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Although complex pricing schedules are increasingly common in utility billing, it is difficult to determine whether consumers respond to complicated marginal prices because price changes are often confounded with simultaneous demand shocks or non-price policies. To overcome this challenge, we exploit a natural experiment -the introduction of a third price block in an increasing block pricing schedule for water -in Santa Cruz, California. Using a regression discontinuity design, we find that consumers do respond to changes in marginal price. Doubling *Nataraj and Hanemann: Agricultural and Resource Economics, University of California, Berkeley. We would like to thank the Santa Cruz Water Department, and Toby Goddard in particular, for providing water use data and explaining Santa Cruz' rate changes. We also thank Max Auffhammer and Sofia Villas-Boas for their original inspiration for a regression discontinuity design, as well as

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Does marginal price matter? A regression discontinuity approach to estimating water demand

Nataraj

Hanemann

2011

Journal of Environmental Economics and Management

113

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“…Following Williams [1985], who found that marginal price estimates are more reliable, and Nieswiadomy and Molina [1991], who conclude that urban water consumers respond to marginal price when faced with IBT, we chose to use the marginal price. The marginal price in our study is defined as the highest price paid by the household during the year, even if it applied to one billing period (usually 2 months) only.…”

Section: Datamentioning

confidence: 99%

“…These studies differ in the types of data used (aggregate or disaggregate household level data), model specification, and estimation technique [Danielson, 1979;Jones and Morris, 1984;Chicoine et al, 1986;Nieswiadomy and Molina, 1988, 1989, 1991. More recently, price elasticity has been estimated using more advanced estimation tools that deal with the endogeneity problem associated with IBT pricing [Hewitt and Hanemann, 1995;Nauges and Blundell, 2002;Olmstead et al, 2005].…”

Section: Introductionmentioning

confidence: 99%

Unintended consequences of increasing block tariffs pricing policy in urban water

Dahan

Nisan

2007

Water Resources Research

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[1] We exploit a unique data set to estimate the degree of economies of scale in water consumption, controlling for the standard demand factors. We found a linear Engel curve in water consumption: each additional household member consumes the same water quantity regardless of household size, except for a single-person household. Our evidence suggests that the increasing block tariffs (IBT) structure, which is indifferent to household size, has unintended consequences. Large households, which are also likely to be poor given the negative correlation between income and household size, are charged a higher price for water. The degree of economies of scale found here erodes the effectiveness of IBT price structure as a way to introduce an equity consideration. This implication is important in view of the global trend toward the use of IBT.Citation: Dahan, M., and U. Nisan (2007), Unintended consequences of increasing block tariffs pricing policy in urban water, Water Resour. Res., 43, W03402,

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“…[12] The IV approach [Nieswiadomy, 1991] allows price to vary across the observed range, at the cost of additional complexity, by identifying a linear proxy to the theoretical supply curve. Although widespread in studies of competitive markets, IV applied to public utilities suffers a number of disadvantages.…”

Section: Instrumental Pricementioning

confidence: 99%

An annual quasidifference approach to water price elasticity

Bell

Griffin

2008

Water Resources Research

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[1] The preferred price specification for retail water demand estimation has not been fully settled by prior literature. Empirical consistency of price indices is necessary to enable testing of competing specifications. Available methods of unbiasing the price index are summarized here. Using original rate information from several hundred Texas utilities, new indices of marginal and average price change are constructed. Marginal water price change is shown to explain consumption variation better than average water price change, based on standard information criteria. Annual change in quantity consumed per month is estimated with differences in climate variables and the new quasidifference marginal price index. As expected, the annual price elasticity of demand is found to vary with daily high and low temperatures and the frequency of precipitation.

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A Note on Price Perception in Water Demand Models

Cited by 89 publications

References 15 publications

Does marginal price matter? A regression discontinuity approach to estimating water demand

Does marginal price matter? A regression discontinuity approach to estimating water demand

Unintended consequences of increasing block tariffs pricing policy in urban water

An annual quasidifference approach to water price elasticity

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