Estimating urban residential water demand: Effects of price structure, conservation, and education

Abstract

Water demand equations are estimated using the most current American Water Works Association (1984) survey of 430 (of 600 largest) U.S. utilities. The data set was augmented by monthly rainfall and temperature data from the National Oceanic and Atmospheric Administration's climatological data. Demographic data were obtained from the U.S. Department of Commerce (1988). Besides the usual endogeneity problems involving block price structures this paper also examines the possible endogeneity of conservation and education programs. Three types of models were used: a marginal price model, an average price model, and Shin's (1985) price perception model. The results generally show that price elasticity is higher in the South and the West. Conservation does not appear to reduce water use, but public education appears to have reduced water usage in the West. The Shin (1985) tests in this study indicate that consumers react more to average than marginal prices in all regions. 1. INTRODUCTION In recent years, water policy officials, faced with growing water demands, have explicitly addressed demand management strategies. Rate structures have been infrequently used as a management tool, as opposed to the traditional methods of education and conservation programs. While the latter two strategies have been emphasized, pricing strategies have recently been receiving attention. The impact of all of these strategies must be examined in a simultaneous framework in any comprehensive demand management program. This paper has two main purposes. The first is to estimate urban water demand in the United States using the most current American Water Works Association (AWWA) [1984] survey of 430 (of 600 largest) U.S. utilities. It is essential to use the most recent data since customers may be responding differently to higher rates than in the past. The most recent studies [e.g., Williams, 1985] rely on the A WWA [1970] survey. This water demand model will explicitly incorporate the impact of conservation programs, something few other studies have done. The second purpose is to test if consumers respond to average prices (AP) or marginal prices (MP) using Shin's [1985] model. Section 2 reviews some of the water demand estimation issues in the literature. Section 3 discusses the data used in this study. Section 4 presents the models used in this study, in particular, a price perception model [Shin, 1985]. Section 5 analyzes the results. Section 6 concludes the paper. 2. WATER DEMAND ESTIMATION ISSUES Although it is essential to understand the key determinants of water usage [Hirshleifer et al., 1960], a consensus on the proper estimation methodology has not been reached. Early water studies ignored block rates by using an average price [Gottlieb, 1963; Young, 1973; Foster and Beattie, 1979]. Later, Nordin [1976] modified Taylor's [1975] specification to include a marginal price and a difference variable to account for the effects of inframarginal rates and fixed fees. Lately, some researchers have implemented Nordin's theo-Copyright !992 b...

Water conservation and hydrological transitions in cities in the United States

“…Per capita water use in U.S. cities has been declining steadily over the past few decades [Rockaway et al, 2011] and not only in areas that experience water stress. Nieswiadomy [1992] examined water prices across U.S. cities and found that price elasticity tended to be higher in the South and West, suggesting that climate has some impact on how water is valued. Nevertheless, he found that a water conservation metric did not appear to be related to water use.…”

“…Water prices have been shown to affect demand and are thus a lever for conservation policy [Martin and Kulakowski, 1991;Mercer and Morgan, 1985;Nieswiadomy, 1992;Piper, 2003]. Comparisons between command and control policies versus pricing or incentives have also been explored [Burness et al, 2005].…”

Price elasticity of residential demand for water: A meta‐analysis

“…Several studies of the residential demand for water involved multiple models that differed by region, by functional form, by estimation method, or by which variables were included. Our analysis includes only studies that provided an estimate of the price elasticity of demand and excludes two models that estimated a nonnegative price elasticity of demand [from Nieswiadomy, 1992 …”

A Hybrid Agent-Based Model for Estimating Residential Water Demand

“…However, there is no general consensus on a methodology for studying the impact of consumer education and information policies. These policies are widely used by the water industry for controlling water demand, with generally positive results [20,21].…”