The impact of price on residential water demand and its relation to system design and price structure

TLDR

The study develops residential water‑demand models and estimates their parameters using cross‑sectional data. The authors estimate demand‑function parameters from cross‑sectional data and empirically examine long‑term price adjustments, discussing how demand functions inform pricing and system design. Domestic demand is relatively inelastic, sprinkling demand is elastic (more so in the east than the west), maximum daily sprinkling demand is inelastic in the west but elastic in the east, and overall demand elasticity averages about –0.4 as a weighted average of the two components.

Abstract

This paper formulates models of residential water demand and estimates the relevant parameters from cross‐sectional data. For the first time, it has been possible to differentiate not only between domestic (inside) and sprinkling uses but also among metered, flat‐rate, septic tank, and apartment areas. The major findings are: (1) domestic demands are relatively inelastic with respect to price; (2) sprinkling demands are elastic with respect to price, but less so in the west than in the east; (3) maximum day sprinkling demands, so important to system design, are inelastic in the west but relatively elastic in the east. The findings indicate that the elasticity of total demand, which this and other studies have found to be about −0.4, is a weighted average of the domestic and sprinkling elasticities. Longer term adjustments to price are empirically investigated, and the role of demand functions in pricing and system design is discussed.