Estimating residential price elasticity of demand for water: A contingent valuation approach

Abstract

Residential households in Perth, Western Australia have access to privately extracted groundwater as well as a public mains water supply, which has been charged through a two‐part block tariff. A contingent valuation approach is developed to estimate price elasticity of demand for public supply. Results are compared with those of a multivariate time series analysis. Validation tests for the contingent approach are proposed, based on a comparison of predicted behaviors following hypothesised price changes with relevant independent data. Properly conducted, the contingent approach appears to be reliable, applicable where the available data do not favor regression analysis, and a fruitful source of information about social, technical, and behavioral responses to change in the price of water.