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

Shanthi Nataraj, W. Michael Hanemann

Research output: Contribution to journalArticle

56 Scopus citations

Abstract

Although complex pricing schedules are increasingly common among water and electricity providers, it is difficult to determine whether consumers respond to changes in the pricing schedule 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 marginal price leads to a 12% decrease in water use (500 cubic feet per bill) among high-use households.

Original languageEnglish (US)
Pages (from-to)198-212
Number of pages15
JournalJournal of Environmental Economics and Management
Volume61
Issue number2
DOIs
StatePublished - Mar 1 2011

Keywords

  • Increasing block pricing
  • Regression discontinuity
  • Water demand

ASJC Scopus subject areas

  • Economics and Econometrics
  • Management, Monitoring, Policy and Law

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