TY - JOUR
T1 - Does marginal price matter? A regression discontinuity approach to estimating water demand
AU - Nataraj, Shanthi
AU - Hanemann, W. Michael
N1 - Funding Information:
This material is based upon work supported under a National Science Foundation Graduate Research Fellowship . 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, and the staff of the Geospatial Innovation Facility at the University of California, Berkeley for their guidance in mapping the household-level data. We are grateful to Caitlin Dyckman, Zhen Lei, Clair Null, Elisabeth Sadoulet, Hugo Salgado, Hendrik Wolff, Alix Peterson Zwane, participants in the Ninth Occasional Workshop on Environmental and Resource Economics at the University of California, Santa Barbara, as well as to a co-editor and two anonymous referees, for their comments. The authors are responsible for any remaining errors.
PY - 2011/3
Y1 - 2011/3
N2 - 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.
AB - 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.
KW - Increasing block pricing
KW - Regression discontinuity
KW - Water demand
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U2 - 10.1016/j.jeem.2010.06.003
DO - 10.1016/j.jeem.2010.06.003
M3 - Article
AN - SCOPUS:79951555338
SN - 0095-0696
VL - 61
SP - 198
EP - 212
JO - Journal of Environmental Economics and Management
JF - Journal of Environmental Economics and Management
IS - 2
ER -