Water demand under alternative price structures

Sheila M. Olmstead, W. Michael Hanemann, Robert N. Stavins

Research output: Contribution to journalArticle

210 Scopus citations

Abstract

We estimate the price elasticity of water demand with household-level data, structurally modeling the piecewise-linear budget constraints imposed by increasing block pricing. We develop a mathematical expression for the unconditional price elasticity of demand under increasing block prices and compare conditional and unconditional elasticities analytically and empirically. We test the hypothesis that price elasticity may depend on price structure, beyond technical differences in elasticity concepts. Due to the possibility of endogenous utility price structure choice, observed differences in elasticity across price structures may be due either to a behavioral response to price structure, or to underlying heterogeneity among water utility service areas.

Original languageEnglish (US)
Pages (from-to)181-198
Number of pages18
JournalJournal of Environmental Economics and Management
Volume54
Issue number2
DOIs
StatePublished - Sep 1 2007
Externally publishedYes

Keywords

  • Non-linear pricing
  • Price elasticity
  • Water demand

ASJC Scopus subject areas

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

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