Urban water demand for manufacturing, construction and service industries: a microdata analysis

Abstract

This study analyses the industrial demand for urban water using a panel dataset of firms operating in the city of Zaragoza (Spain) and looking at three sectors (manufacturing, construction and services) disaggregated on 24 subsectors. Evidence in favour of using the marginal price rather than the average price is obtained, and the selection of the price is found to influence the value of the elasticities. Based on a translog cost function, the direct price elasticity of water (−0.86), the output elasticity (0.73) and the cross-price elasticities between water and capital, labour and supplies (being all of them substitutes) were estimated. By subsectors, the influence of price is only significant in those with a higher share of water in the total production cost. These results indicate that pricing can be used as a tool for managing water demand by promoting conservation of the resource. However, these results also indicate that the simultaneous use of other instruments is advisable to reinforce the impact of pricing policy on water consumption.

Economic Determinants of Industrial Water Demand: A Review of the Applied Research Literature

“…This practice has been generalized, with most papers focusing on one (or a few) manufacturing activities of special interest because of their water utilization [23][24][25][26] and also covering the service sector [25,[27][28][29][30][31]. However, it is not common to analyse water demand for a vast number of sectors and subsectors, as evidenced by the fact that only seven of the references analysed in this review have considered more than 10 subsectors [32][33][34][35][36][37][38].…”

“…A common denominator in previous studies based on the cost function is the interest in the relationship (of complementarity or substitutability) between water and other inputs of the production process [18,22,26,30,[35][36][37][38][39][40][41][42]. Another dimension of this issue leads to the consideration of different water inputs.…”

“…The seminal works of the seventies used aggregate data, such as water consumption of the industrial sector. Subsequently, studies have been incorporating an increasingly high level of disaggregation, finally leading to the use of microdata for analysing firm's behaviour e.g., [30,36,38,41,[55][56][57][58][59], which is the most suitable approach for this type of analysis for avoiding a possible aggregation bias due to the firms' heterogeneity. These microdata usually come (in a similar proportion) from public industrial surveys or from private surveys to firms elaborated by the own researchers, and, to a lesser extent, from metering records from the water utilities.…”

“…The type of data available has led to propose cross-sectional studies, or panel data studies, but for a short period of time (Table 1). There is a lack of panel data analysis covering a wide time period [30,35,36,38,61,63,64], which is the most adequate approach for capturing at the same time the individual and temporal dimension, and also few studies carried out time-series analysis [26,29,65,66].…”

“…Therefore, this issue has been the subject of an intense methodological debate but more focused on the domestic sphere, e.g. [72][73][74][75][76][77][78][79][80][81], than on industrial water [23,36,42,82]. Some works have also conducted this debate in other sectors, such as electricity [83][84][85] or natural gas [86].…”