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

Nataraj, Shanthi; Hanemann, W. Michael

doi:10.1016/j.jeem.2010.06.003

Cited by 113 publications

(67 citation statements)

References 15 publications

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“…Borenstein (2009) also finds evidence that electricity consumers are responding either to average price or expected marginal price (which entails averaging over uncertain consumption) rather than the actual marginal price paid. Nataraj and Hanemann (2011) conclude that water consumers do respond to changes in marginal price. The extent to which these discrepancies are due to fundamental differences between water and electricity consumption, and/or between the price structures under investigation, is a topic for future work.…”

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confidence: 90%

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

Baerenklau¹,

Schwabe²,

Dinar³

2014

Land Economics

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We investigate the effect of introducing a fiscally neutral increasing block rate water budget price structure on residential water demand. We estimate that demand was reduced by around 17%, although the reduction was achieved gradually over more than three years. As intermediate steps we derive estimates of price and income elasticities that rely only on longitudinal variability. We investigate how different subpopulations responded to the pricing change and find evidence that marginal, rather than average, prices may be driving consumption. We also derive alternative rate structures that might have been implemented, and assess their estimated demand effects. Key wordsBlock rate pricing, DCC model, residential water demand, water budgets. 1 Increasing Block Rate Water BudgetsAs urban water utilities confront increasingly scarce and less reliable water supplies due to population growth, environmental regulation, and climate variability, water managers are seeking opportunities to reduce residential water demand. While the adoption of non-price instruments (e.g., short-term water restrictions, subsidies for water-saving technologies, and public-awareness campaigns) likely will continue to be wide-spread, volumetric pricing and, in particular, block-rate pricing is gaining traction. This is not surprising to economists who have long espoused the merits of pricing as an efficient and effective means to address water scarcity (e.g., Howe and Linaweaver 1967;Chesnutt and Beecher 1998;Renwick and Green 2000;Griffin 2001;Dalhuisen et al. 2003;Olmstead and Stavins 2009;Grafton et al. 2011). One challenge confronting water utilities that are considering switching to volumetric pricing is identifying the particular rate structure that is best suited to their needs. One structure that is increasingly being adopted by California water utilities is the increasing block-rate water budget.Increasing block rate (IBR) water budgets (which we refer to herein more simply as "water budgets") are a particular type of escalating tiered price structure in which the block sizes are based on household-specific characteristics (e.g., household size, irrigated area), environmental conditions (e.g., evapotranspiration), and a judgment by the water utility with regard to what constitutes "efficient" water use given those characteristics and conditions. This means that price structures can differ across households at any given time, and through time for any given household. Water budgets are a relatively new pricing tool. One of the earliest adopters was the Irvine Ranch Water District (IRWD) in southern California which instituted such pricing in the early 1990s (IRWD 2013).Water budgets are thought to have significant advantages over more commonly used rate structures.1 Foremost, water budgets provide utilities with the means to promote conservation through appropriate price signals while also maintaining fiscal balance. Under water budget pricing, each 1 We thank an anonymous reviewer for helping to improve this section. introdu...

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confidence: 90%

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

Baerenklau¹,

Schwabe²,

Dinar³

2014

Land Economics

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“…No attempt was however made to quantify the economic impact a change in a block water tariff has on price elasticity. Nataraj and Hanemann (2011) analysed the impact of the introduction of a third price block on residential water consumption in Santa Cruz, and concluded that consumers who expected to face the higher marginal price in the 3 rd block would reduce their consumption.…”

Section: Introductionmentioning

confidence: 99%

A model to assess water tariffs as part of water demand management

Plessis

2013

WSA

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Water Conservation and Water Demand Management (WC/WDM) forms part of integrated water resource management and can be used as an economically viable alternative to the upgrade of infrastructure to balance supply and demand. In order to enable effective decision-making, a model was developed in this study to estimate expected water savings and the financial impact of a change in water tariff as a WC/WDM measure. This paper describes a model that was developed for municipalities to calculate the predicted change in water use and the associated income. The model takes into account variation in price elasticity per tariff block. The effectiveness of the model as a planning tool is illustrated through an appropriate example.

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“…forecast its demand, to analyze and interpret the human interactions and to adjust the pricing policy (Emelko et al, 2011;Nataraj and Hanemann, 2011). Additionally, some authors have also included other variables such as temperature, rainfall, geographical factors, and sun-light period (Abdel-Aal and Al-Garni, 1997; Blaney and Inglis, 1980;Paatero and Lund, 2006;Stokes et al, 2004).…”

Section: Implementation Of Pricing Policies For Peak Water Demand Permentioning

confidence: 99%

“…These changes and others are key factors that exacerbate the imbalance between the demand and availability of fresh water resources, with a growing recognition that the current situation is unsustainable (Almeida et al, 2013;Arbués et al, 2003;Nataraj and Hanemann, 2011).…”

Section: Introductionmentioning

confidence: 99%

Mathematical model as a standard procedure to analyze small and large water distribution networks

Prieto

Murado

Bartlett

et al. 2015

Journal of Cleaner Production

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HIGHLIGHTSA model was developed to simulate domestic water flow> The model was applied to analyze selected domestic areas in Sligo, Ireland> Reliable parameters are generated allowing the analysis of water consumption> The results confirmed the capabilities of this approach identifying water trends> The study provides rigorous criteria to compare and predict water usage . 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 4 ABSTRACT Currently, more research to implement and monitor cleaner production practices for distribution and sustainable management of natural and alternative water sources to comply with the demands of the different users while preserving water levels are needed. In this paper, a periodic hourlybased model with meaningful parameters has been developed to analyze and forecast water demand as a function of time, thus enabling a better understanding of the consumption pattern and the condition of the pipe network. The model was tested by investigating the daily water consumption from selected categories of users which were isolated from different distribution networks in Sligo, Ireland. The flow data used was obtained in 15-min intervals and averaged in different time periods for analysis. In all cases, the model fittings obtained were highly consistent and all the parameters showed satisfactory confidence intervals (=0.05), thus demonstrating the reliability of this approach. The model provides a quick analysis revealing the regularities of water demand that could benefit water utility managers and researchers: to obtain optimal regulation and pumping schemes; for planning and design purposes; to control unexpected scenarios that can take place during the distribution of water; the performance of water distribution systems; and to locate possible network failures. In addition, the model parameters can be used as standard criteria for water utilities to compare precisely the water demand between different areas, identify complex trends and analyze the pipe network for managing, auditing and monitoring purposes.

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

Cited by 113 publications

References 15 publications

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

The Residential Water Demand Effect of Increasing Block Rate Water Budgets

A model to assess water tariffs as part of water demand management

Mathematical model as a standard procedure to analyze small and large water distribution networks

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