perceived price in residential water demand evidence from a natural experiment abstract under complicated billing structures the price to which consumers respond remains inconclusive in this paper i exploit a quasi experiment to estimate a causal effect of price for residential water customers during the introduction of increasing block rates for a north carolina utility perceived price is identified through a billing anomaly in which changes in marginal and average prices move in opposite directions empirical results contribute evidence that residential water customers respond to average price average price elasticity estimates vary from 0 43 to 1 14 across the distribution of consumption in triple difference models with an estimate of 0 31 in the tightest bandwidth of regression discontinuity specifications

energy efficiency programs in the context of increasing block tariffs the case of residential electricity in mexico increasing block pricing schemes represent difficulties for applied researchers who try to recover demand parameters in particular price and income elasticities the mexican residential electricity tariff structure is amongst the most intricate around the globe in this paper we estimate the residential electricity demand and use the corresponding structural parameter estimates to simulate an energy efficiency improvement scenario as suggested by the energy transition law of december 2015 the simulated program consists of a massive replacement of electric appliances air conditioners fans refrigerators washing machines and light bulbs for more energy efficient units the main empirical findings are the following overall residential electricity consumption decreases 8 9 and the associated expenditure falls 11 1 additionally the electricity subsidy decreases 360 million of usd per year and there is an annual cut in co2 emissions of 3 5 million of tons

price elasticity of groundwater demand attenuation and amplification bias due to incomplete information measurement errors in both human and natural components of agricultural and environmental systems can be as much a source of estimation bias as omitted variables selfselection simultaneity and reverse causality nonetheless partly because of difficulties in obtaining data there is less literature on measurement error problems than on other endogeneity problems this article examines estimation bias in the price elasticity of groundwater consumption for irrigated agriculture on the intensive margin the price at issue is for the energy used in pumping and pressurizing water for delivery lacking the precise unit irrigation cost previous studies imputed irrigation costs we first consider groundwater irrigation costs and identify factors that can cause measurement errors in the process of imputation under incomplete information about the determinants of irrigation costs we follow this by systematically analyzing the potential bias caused by measurement errors using econometric theory along with monte carlo simulations where appropriate we then quantify actual measurement errors making use of a unique dataset in which energy and groundwater consumption data are matched for individual observations finally we compare regression results using exact irrigation costs as opposed to imputed ones we find evidence of substantial measurement errors resulting in attenuation and amplification bias in the price elasticity of irrigation water consumption on the intensive margin our results indicate that measurement errors in irrigation costs can lead to misleading policy implications related to water and energy pricing as a tool to conserve water we also show that estimating the energy price elasticity of groundwater use is not as straightforward as previously thought

infrastructure quality and the subsidy trap abstract electricity and water are often subsidized in developing countries to increase their affordability for low income households ideally such subsidies would create sufficient demand in poor neighborhoods to encourage private investment in their infrastructure instead many regions receiving large subsidies have precarious distribution networks supplying users who never pay using a structural model of household electricity demand in colombia i predict the change in consumption and profits from upgrading low quality electricity connections i show that the existing subsidies which provide greater transfers to areas with unreliable supply deter investment to modernize infrastructure finally i analyze alternative programs with stronger investment incentives jel h23 h54 l94 l98 o12 o13

the econometrics of kinked budget constraints in the last several years a branch of applied econometrics has developed which is devoted to the development of techniques for the estimation of demand and other functions when the budget constraint is piecewise linear or kinky that is when the constraint consists of a number of segments joined together at kink points such constraints most frequently arise from government tax and transfer programs for example the federal income tax imposes a piecewise linear schedule by the use of constant marginal tax rates within brackets a problem analyzed by hausman 1981 the payroll tax in the social security system likewise generates a kinked schedule inasmuch as the marginal tax rate on earnings is zero above a certain earnings maximum federal and state transfer programs for the poor result in piecewise linear constraints because transfer benefits are taxed in the sense of a negative income tax as income rises and because that tax rate falls to zero at the kink point where an individual or family loses eligibility for the benefit altogether many government transfer programs impose additional nonlinearities by altering this tax rate by discrete amounts over the range of positive benefits as well but kinked constraints sometimes arise in nongovernment contexts a well known example being the block pricing schedule commonly set by utilities and volume discounting in general kinked budget constraints create two difficulties that have several interesting facets one difficulty is that changes in tax and transfer schedules can have unexpected effects that can be exactly the opposite in sign to those expected from economic theory examples of this phenomenon are given below the second difficulty that with which this paper is mostly concerned relates to the implications of kinked budget

incentives to water conservation under scarcity comparing price and reward effects through stated preferences abstract focusing on two different european institutional contexts a stated preference approach is adopted to elicit the willingness to save water under three alternative incentive policies a water price increase monetary reward and symbolic prize in addition two water scarcity scenarios a critical and a regular scenario are devised to analyze how information on water scarcity moderates the effect of incentives empirical results show that users become sensitive to monetary incentives while they remain insensitive to non monetary ones when water is scarce batteries of pre tests on the sample and robustness checks on the results strengthen the reliability of our findings and partially circumvent concerns related to the use of a stated preference approach the study adds to the literature on the efficacy of economic incentives in the water sector and the role of local factors in explaining water users response

measuring the impact of water supply interruptions on household welfare water scarcity frequently leads to a need for rationing the choice of an adequate rationing method should be based on the impact on consumer welfare that is produced by each rationing plan some rationing schemes such as the frequently used supply interruption method can be regarded as changes in the characteristics of the good in this case time availability that do not modify the pre set consumer budget under the standard theoretical restrictions on consumer behavior compensating or equivalent variations surpluses cannot be used to identify the impacts of these methods on household welfare in this paper we propose a set of sufficient conditions with respect to the utility function that allows for the evaluation of the compensating or equivalent variations surpluses associated with changes in goods quality even if those goods are considered to be essential for consumers we use these conditions to compare the welfare losses associated with the water supply cuts implemented in seville spain to those that would result if water was instead rationed using price changes

a systems approach for assessing water conservation potential through demand based water tariffs sustainable and responsive water management policies are essential to provide high quality reasonably priced drinking water to consumers at any time while simultaneously ensuring a profit for the water utility such goal can be typically achieved through two different types of policy namely increasing water supply or managing water demand the latter can be performed among others through water pricing pricing especially when demand based can lead to a behavioural change in customer water use but it is arduous to introduce for a number of political and social reasons it is essential to engage with relevant stakeholders to clearly recognize pros and cons of implementing a new water tariff as a consequence in this paper economic and social implications of demand based tariff structures and their potential for greater water conservation are assessed through a participatory approach the variation of residential water demand and revenue outcomes were simulated through an integrated participatory systems approach by assuming that an inclining block tariff was introduced on the gold coast region australia such connection between price demand and revenue is highly complex and the choice of system dynamics for this modelling exercise is considered ideal as it can explicitly handle the non linearity feedbacks and interconnections of such system the simulation model was developed by collaborating with relevant stakeholders thus ensuring the logical inclusion of all the relevant inputs and connections such model integrates three components namely revenue forecasting water billing and demand feedback sub model the results show that a the inclining block tariff can effectively lead to behavioural change and water consumption reduction especially within the high water users group although the predicted water savings would be lower than when adopting water restrictions b customers feedback to an increased cost can be used to achieve revenue neutrality c based on customer feedback and modelling simulations the ideal proportion of customers to be charged with the second block tariff is 20 however this can be recalculated and varied during wet seasons or dry seasons to optimise water availability the developed model allows water planners to explore a wide range of policy alternatives e g alternative pricing scenarios to influence demand over medium to long term periods and to optimise best practice decision making for urban water conservation and management

demand for piped and non piped water supply services evidence from southwest sri lanka in many countries water supply is a service that is seriously underpriced especially for residential consumers this has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of service provision identification of factors driving piped and non piped water demand is a necessary prerequisite for predicting how consumers will react to such price increases using cross sectional data of 1 800 households from southwest sri lanka we estimate water demand functions for piped and non piped households using appropriate econometric techniques the marginal price elasticity is estimated at 0 15 for households exclusively relying on piped water and at 0 37 for households using piped water but supplementing their supply with other water sources the time cost elasticity for households relying on non piped water only is estimated at 0 06 on average but varying across sources for both piped and non piped households we find evidence of substitutability between water from different sources we discuss the implications of these results in terms of pricing policy

a discrete continuous choice approach to residential water demand under block rate pricing reply waldman is quite correct in noting that the microeconomic theory of block rate pricing in hewitt and hanemann hh 1995 is given for the general case of a k block rate structure whereas the econometric theory is largely confined to the case of exactly two blocks the extension in waldman to the more general case of k blocks is correct although the extension itself could be even more general if it addressed the nonnegativity of demand as is demonstrated below that no apparent attention was paid to the nonnegativity of demand in hh may be attributed to the fact that the need to do so was negated by a fortuitous assumption in the earlier work although that assumption that the errors are multiplicative and lognormally distributed was only maintained and not tested in hh i now estimate two models with the more common assumptions of linear demand and additive and normally distributed errors both with and without a modification for

the foreign exchange market a random walk with a dragging anchor this paper explores some anomalies in the foreign exchange market it is hard to find evidence of either short term overshooting or of longer term reversion to an equilibrium the forward exchange rate contains virtually no information on future spot rates discussions with practitioners indicate that longer term speculation based on fundamentals is strictly limited and survey data and other evidence suggest that expectations and speculation are based on a variety of models the interplay between speculation based on fundamentals and on a random walk or chartist approach influences the outcome this endorses the prior model of j a frankel and k a froot copyright 1988 by the london school of economics and political science

how do urban households in china respond to increasing block pricing in electricity evidence from a fuzzy regression discontinuity approach abstract china is the largest electricity consumption country after it has passed the united states in 2011 residential electricity consumption in china grew by 381 35 12 85 per annum between 2000 and 2013 in order to deal with rapid growth in residential electricity consumption an increasing block pricing policy was introduced for residential electricity consumers in china on july 1st 2012 using difference in differences models with a fuzzy regression discontinuity design we estimate a causal effect of price on electricity consumption for urban households during the introduction of increasing block pricing policy in guangdong province of china we find that consumers do not respond to a smaller approximately 8 increase in marginal price however consumers do respond to a larger increase in marginal price an approximately 40 increase in marginal price induces an approximately 35 decrease in electricity use 284 kw h per month our results suggest that although the increasing block pricing could affect the behavior of households with higher electricity use there is only a limit potential to overall energy conservation

climate change adaptation a study of fuel choice and consumption in the us energy sector abstract using cross sectional data this paper estimates a national energy model of fuel choice by both households and firms consumers in warmer locations rely relatively more heavily on electricity rather than natural gas oil and other fuels they also use more energy climate change will likely increase electricity consumption on cooling but reduce the use of other fuels for heating on net american energy expenditures will likely increase resulting in welfare damages that increase as temperatures rise for example if the us warms by 5 c by 2100 we predict annual welfare losses of 57 billion

decomposing the effects of negative framing in linear public goods games i examine two dimensions of framing in public goods games contributing vs taking and gains vs losses i find decreased cooperation under the taking frame but not under the loss frame this framing effect is stronger for men than women

household water demand seasonal elasticities a stone geary model under an increasing block rate structure using household level panel data from tucson arizona and a unique set of highly disaggregated control variables we estimate residential demand for water via a stone geary specification the stone geary functional form allows price elasticity of demand to vary with quantity consumed price and income and enables estimation of a threshold level of consumption below which demand is considered perfectly price inelastic an encompassing test of consumer price response reveals evidence favoring a lagged average price specification rather than one using lagged marginal price the estimated model also finds substantial seasonal variation in price elasticity and declining consumer price responsiveness

optimal water pricing accounting for environmental externalities abstract a pricing based mechanism that implements the optimal water policy while accounting for environmental externalities is developed the analysis is presented in the context of a comprehensive water economy stressing the tradeoffs between water use in the provision of ecosystem services vs other uses a distinction is made between conveyed and instream environmental water which turns out to have important policy implications it is shown that the allocation of instream water can be implemented by properly incorporating the marginal instream value of water within the shadow in situ price of natural water the regulation of conveyed environmental water requires a quota price combination an example based on israel s water economy is presented

the welfare economics of optional water metering a model of decentralised metering decisions that applies to the water industry is developed the social benefit of metering is higher the more sensitive demand is to the price allowing households to choose whether or not to have meters is efficient when only small households should have meters but does not work when the regulator does not know household characteristics and only larger households should have meters the policy of requiring meters to be provided free which has been adopted in england and wales is analysed

the econometrics of piecewise linear budget constraints a survey and exposition of the maximum likelihood method in this article maximum likelihood techniques for estimating consumer demand functions when budget constraints are piecewise linear are exposited and surveyed consumer demand functions are formally derived under such constraints and it is shown that the functions are themselves nonlinear as a result the econometric problems in estimating such functions are exposited and the importance of the stochastic specification is stressed in particular the specification of both unobserved heterogeneity of preferences and measurement error econometric issues in estimation and testing are discussed and the results of the studies that have been conducted to date are surveyed

reconsidering the economics of demand analysis with kinked budget constraints this paper has two objectives first we identify a problem with the ability of the discrete continuous choice framework and conditional demand functions to fully describe consumer preferences in the presence of kinked budget constraints second we propose and illustrate an alternative preference based method for estimating consumer responses to price changes under these conditions this framework recognizes that commitments to commodities such as pools or outdoor landscaping influence how water consumption responds to price changes as part of the long run consumption adjustments with microdata on household choices this approach could be used to design increasing block rate structures that recognize the differences in water consumption responses with these commitments

the value of scarce water measuring the inefficiency of municipal regulations abstract rather than allowing urban water prices to reflect scarcity rents during periods of drought induced excess demand policy makers have mandated command and control approaches primarily rationing the use of water outdoors while such policies are ubiquitous and likely inefficient economists have not had access to sufficient data to estimate their economic impact using unique panel data on residential end uses of water in 11 north american cities we examine the welfare implications of urban water rationing in response to drought using estimates of expected marginal prices that vary both across and within markets we estimate price elasticities specific to indoor and outdoor water use our results suggest that current policies do target water uses that households themselves are most willing to forgo nevertheless we find that rationing outdoor water in cities has costly welfare implications primarily due to household heterogeneity in willingness to pay for scarce water we find that replacing rationing policies with a market clearing drought price would result in welfare gains of more than 29 of what households in the sample spend each year on water

sand in the wheels or spanner in the works the tobin tax and global finance this paper presents a radical critique of the tobin tax a tax on currency transactions by undercutting certain assumptions about the size and character of the world s foreign exchange markets which furnish the tax with its basic rationale while it is acknowledged that only a fraction of the massive volumes of fx transactions relate directly to trade in goods and services or to cross border investments it is denied that all the residual transactions are motivated purely by exchange rate considerations speculative or hedging activities rather the argument is that a significant proportion of fx trades have money market characteristics and that these trades together with domestic money market transactions play an important role in the day to day operation of the global financial system this perspective is used to show that the imposition of a tobin tax would cause extensive material damage to the system with consequences that may run counter to the expectations of supporters of the tax

determinants of residential water demand in germany abstract we econometrically analyze the impact of several economic environmental and social determinants for the per capita demand for water in about 600 water supply areas in germany besides prices income and household size we consider the effects of population age the share of wells housing patterns precipitation and temperature we also explore why current per capita residential water consumption in the new federal states is about 30 lower than in the old federal states since average cost pricing may cause an endogeneity problem we apply instrumental variable procedures in addition to single equation ordinary least squares but find no evidence that prices are endogenous our estimation results suggest that the price elasticity of water demand in germany is around 0 24 the income elasticity is positive decreases with higher income levels and is at least three times higher in the new federal states than in the old federal states current differences in prices and income levels explain about one third of the gap in residential water use between the two regions household size and the share of wells have a negative impact on per capita water demand and water use increases with age finally the findings provide some evidence that rainfall patterns rather than total rainfall affect water consumption while temperature appears to have no impact at all all outcomes are robust to a log log and two types of semi log specifications for the water demand function

measuring price elasticities for residential water demand with limited information this paper exploits the seasonal and annual changes in marginal prices for water to estimate the price elasticity of demand by residential households for water it uses the changes in distributions of water used at the census block group levels in response to changes in marginal prices of water for matched months across years this strategy reduces the interaction effects of outdoor use and demographic factors in determining responsiveness to price by comparing years that vary in overall water availability the framework can recover measures of how responses to price vary with season and drought conditions the application is the urban phoenix metropolitan area jel h42 q25

the residential water demand effect of increasing block rate water budgets we investigate the effect of introducing a fiscally neutral increasing block rate water budget price structure on residential water demand we estimate that demand was reduced by around 17 although the reduction was achieved gradually over more than three years as intermediate steps we derive estimates of price and income elasticities that rely only on longitudinal variability we investigate how different subpopulations responded to the pricing change and find evidence that marginal rather than average prices may be driving consumption we also derive alternative rate structures that might have been implemented and assess their estimated demand effects

water security through scarcity pricing and reverse osmosis a system dynamics approach water supply and demand planning is often conducted independently of social and economic strategies there are presently no comprehensive life cycle approaches to modelling urban water balances that incorporate economic feedbacks such as tariff adjustment which can in turn create a financing capacity for investment responses to low reservoir levels this paper addresses this gap and presents a system dynamics model that augments the usual water utility representation of the physical linkages of water grids by adding inter connected feedback loops in tariff structures demand levels and financing capacity the model applied in the south east queensland region in australia enables simulation of alternatives and analysis of stocks and flows around a grid or portfolio of bulk supplies including an increasing proportion of rain independent desalination plants such rain independent water production plants complement the rain dependent sources in the region and can potentially offer indefinite water security at a price the study also shows how an alternative temporary drought pricing regime not only defers costly bulk supply infrastructure but actually generates greater price stability than traditional pricing approaches the model has implications for water supply planners seeking to pro actively plan justify and finance portfolios of rain dependent and rain independent bulk water supply infrastructure interestingly the modelling showed that a temporary drought pricing regime not only lowers the frequency and severity of water insecurity events but also reduces the long run marginal cost of water supply for the region when compared to traditional reactive planning approaches that focus on restrictions to affect demand in scarcity periods

efficiency and equity in two part tariffs the case of residential water rates as first noticed by coase 1946 a standard result in utility regulation is that efficiency requires two part tariffs with marginal prices set to marginal costs and fixed fees equal to each customer s share of fixed costs residential water customers in france face marginal prices for water that average about 8 more than marginal costs under price elasticity estimates that are consistent with previous results in the literature efficiency costs represent around 8 million euros of welfare losses for 2008 even though the impact is fairly small current price schedules are an important pre existing distortion which should be considered when evaluating current taxes aimed at addressing external costs moreover efficiency gains from reformed tariffs could be used to fund water assistance programs focused on financially stressed households

transformation of banking reconsidered how feasible is de financialisation a defining feature of financialisation has been the transformation of banking especially the expansion of investment banking this article argues that the financialisation literature has to date failed to adequately explain this transformation neither disintermediation processes on the one hand nor liberalisation of financial service activities on the other hand can explain the increase in scale and scope of the sector the growth in investment banking activities should instead be seen in terms of the overall expansion of financial markets in particular demographic pressures and neoliberal restructuring have led to the growth of capital markets and modern asset management the rise of capital markets and asset management and the associated growth of money and derivatives markets have in turn put pressures on the banking system for expanded investment services which it has met understanding financialisation as a structural change implies limits on how much economies can be de financialised

water demand under alternative price structures 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

demand side technology standards under inefficient pricing regimes when price setting regulators haveobjectives other than maximizing socialsurplus the conservation potential ofdemand side technology standards can besignificantly diminished this paperdemonstrates this by empirically recovering thesocially sub optimal preferences of a group ofwater managers in a groundwater dependentregion of california and simulating theirinefficient price response to the mandatedadoption of low flow appliances by homeowners the resulting reduction in the conservationpotential of these appliances is quantified and a modest tax is shown to be a relativelycost effective policy tool for conservation if non price conservation policies arepreferred according to equity criteria thepaper suggests that in order to preserve theirconservation potential policy makers should berequired to continue to set prices as if notechnology standards had been introduced

comparing residential water demand estimates under decreasing and increasing block rates using household data using a new model formulation and data from a sample of colorado utilities we investigated the price specification controversy marginal price versus average revenue when estimating residential water demand the improved statistical fit using average

welfare and distribution effects of water pricing policies in this paper distribution and welfare effects of changes in block price systems are evaluated a method is discussed to determine for a marshallian demand function equivalent variation in case of a block price system the method is applied to compare for the metropolitan region of sao paulo alternative pricing policies on the basis of their demand welfare and distribution effects of changing water prices results show that there is a trade off between average welfare and income distribution a pro poor price system may result in lower average welfare than a flat price system but in higher individual welfare for the poor moreover there is a trade off between revenues for the water company and income distribution even though pro poor price systems may not be as good for average welfare as flat price systems their direct effects on poverty are important introducing pro poor price systems however may have financial consequences for the water companies

are grains of sand in the wheels of international finance sufficient to do the job when boulders are often required this paper criticises the effectiveness of a tobin tax in acting as a deterrent to short run round trip speculation on exchange rate movements it is demonstrated that given the usual magnitude of a proposed tobin tax the deterrent to short term speculation will be negligible and in all likelihood smaller than the deterrent to real trade flows and arbitrage activities finally an alternative proposal for preventing currency speculations while creating incentives for global full employment based on keynes s 1940s writings is proposed

exchange rate instability and the tobin tax professor james tobin s proposal for a tax on foreign exchange transactions is attracting renewed attention in view of its growing revenue potential and concern at the instability of currency markets this article considers a volume of essays on the possible effects and feasibility of the tax and a report for the imf proposing a two tier variant of the tax it goes on to discuss the principles on which a new and more stable exchange rate regime should be based copyright 1997 by oxford university press

two cases for sand in the wheels of international finance the incompatibility of pegged exchange rates international capital mobility and national monetary autonomy is a basic postulate of open economy macroeconomies in the present environment of high capital mobility and political uncertainty even the possibility that governments may utilize their policy autonomy can defeat efforts to peg the exchange rate this leaves two possibilities one is to fix the exchange rate irrevocably through monetary unification the other is to live with floating rates either way a case can be made for throwing sand in the wheels of international finance where monetary unification is not an option this is a may to make distinct national currencies tolerable and international money and capital markets compatible with modest national autonomy in monetary and macroeconomic policy for eu counties striving to create a monetary union it is the only politically and economically feasible way of completing the transition to stage iii of the maastricht process

capital market trading volume an overview and some preliminary conclusions this paper suggests an explanation for the heavy trading volume observed on the us capital markets the world s largest heterodox economic theory puts much of this volume down to speculation mainstream theory tends to support this thesis either directly or indirectly by giving space to the idea that trading activity is for the most part exogenous to the functioning of the capital markets the central hypothesis of this paper is that the trading volumes observed are an endogenous feature of the capital markets because they are to a great extent determined by the needs of the institutional investors who predominate on these markets this endogeneity of trading is posited in connection with the emergence of a new core satellite paradigm in institutional investment a development that essentially manifests the asset management industry s transformation from a small industry serving a few wealthy clients to a mass industry serving large sections of the population

scarcity rents for water a valuation and pricing model for most natural resources the existence of scarcity and the extent of the scarcity rent can be readily determined at least conceptually that portion of the resource price in excess of extraction costs signals scarcity and defines the value of the resource in situ drawing on hotelling s 1931 treatment heal 1976 pindyck 1978 and hanson 1980 among others have used various forms of this relationship to analyze efficient extraction and consumption of natural resources given clear ownership no externalities and the existence of viable markets competitive market processes will establish the efficient level of this rent and thus the efficient time path of extraction and consumption in the absence of clear ownership rights and markets however scarcity value frequently goes unrecognized water resources provide an important example of this phenomenon given the growing apparent shortages in both urban and agricultural uses government agencies typically own the resource or otherwise have free access to it and need only cover extraction treatment and distribution costs ignoring scarcity rents in water pricing means that water prices are too low thereby inducing excessive extraction capacity investment and consumption even if water utilities were aware of the concept and importance of scarcity rent the absence of marketdetermined water prices makes the valuation of scarcity rents very difficult most water supply utilities obtain water from sources that have a recognized finite capacity this occurs where the withdrawal rates exceed the current rate of recharge a similar situation exists when utilities approach their legal entitlement to some given water source such as california water authorities now face with respect to their colorado river rights the anticipated higher cost for water implies a scarcity rent howe 1979 78ff on use of existing cheaper water sources today the usual lack of markets in water makes this rent implicit but it exists just as with oil or diamonds or any scarce natural resource this c st is completely distinct from outlays for exploration development transmission treatment and distribution which as out ofpocket costs readily become embedded in conventional water prices scarcity rent could arise with or without economies or diseconomies of scale in extraction or distribution it

price and income elasticities of residential water demand a meta analysis this article presents a meta analysis of variations in price and income elasticities of residential water demand meta analysis constitutes an adequate tool to synthesize research results by means of an analysis of the variation in empirical estimates reported in the literature we link the variation in estimated elasticities to differences in theoretical microeconomic choice approaches differences in spatial and temporal dynamics as well as differences in research design of the underlying studies the occurrence of increasing or decreasing block rate systems turns out to be important with respect to price elasticities the use of the discrete continuous choice approach is relevant in explaining observed differences

effect of price information on residential water demand microeconomic theory predicts that people decrease consumption when price increases the magnitude of the effect depending on price elasticity the law of demand however implicitly assumes that consumers know prices an assumption that is not always satisfied in markets with ex post billing when prices are not transparent elasticity estimates are potentially lower than their full information potential evidence of low price elasticity abounds in residential water demand studies limiting the effectiveness and desirability of using price signals as a conservation tool it is hypothesized that resident s sluggish response to price is partly due to the absence of price information on water bills differences in the informational content of bills are documented for the first time on the basis of sample bills collected from 383 utilities across the usa a standard aggregate water demand model is augmented with qualitative variables describing differences in billing information allowing such variables to a

household responses to increased water rates during the california drought this paper explores the use of fixed effects and maximum likelihood techniques to es timate household responses to water price in creases during the california drought estimates are based on bimonthly meter readings from 599 single family households in the alameda county water district over the period 1982 1992 before and after the introduction of a steeply increasing block rate price structure i find that household and monthly fixed effects models are not success ful in modeling water demand with these data however maximum likelihood models that ex plicitly consider the household s response to the rate structure result in plausible estimates of wa ter demand jel q25

instrumental variables approach to rural water service demand interest in empirical studies of the demand for goods sold through discrete pricing structures has grown since nordin suggested a modification of taylor s demand model 24 29 the bulk of early empirical research centered on residential electricity demand however econometric studies of water demand have proliferated in recent years some articles have been concerned in part with the proper theoretical specification of demand equations incorporating block rate pricing schedules taylor specified price as being composed of the marginal price associated with the block in which consumption occurs and an average price 29 nordin modified taylor s specification by demonstrating utility maximizing consumers with perfect information respond to marginal price along with a lump sum income effect associated with intramarginal prices and price schedule breakpoints 24 there is a potential problem in the estimation of demand for goods sold through block rate pricing schemes because of the possibility of correlation between price variables and the error structure 29 there are then two issues associated with the study of demand for goods sold under discrete pricing mechanisms the first issue is whether if consumers are aware of block pricing structures and respond to marginal price and the lump sum income change or rate premium or are aware of only total spending and total consumption and respond to an average price 11 5 9 26 the second issue is the choice of estimating technique 4 14 20 31 25 these two issues are not unrelated since empirical validation of consumer behavior

are price strategies effective in managing demand of high residential water users abstractencouraging water use efficiency and water conservation is one of the primary goals of water utility companies nationwide this study estimates price elasticity of residential water demand to measure the responsiveness of water use to price changes particularly for high water users household level water use data for high residential water users from central florida were analysed using 3 stage least square 3sls estimated price elasticity ranges between 0 07 and 0 14 this price elasticity estimate is below most of the estimates reported in the literature in absolute value the results imply that for price strategies to be effective in managing water demand of high residential water users a significant price increase would be needed overall this study highlights the importance of designing water conservation policies tailored to specific groups of customers and the importance of using these strategies effectively and fairly for different customer groups

the value of free water analyzing south africa s free basic water policy this paper analyzes south africa s free basic water policy under which households receive a free water allowance equal to the world health organization s recommended minimum of 6 kiloliters per month i structurally estimate residential water demand evaluate the welfare eects of free water and provide optimal price schedules derived from a social planner s problem i use a unique dataset of monthly metered billing data for 60 000 households for 2002 2008 from a particularly disadvantaged suburb of pretoria the dataset contains rich price variation across 18 dierent nonlinear tarischedules and includes a policy experiment which removed the free allowance i nd that without government subsidy the mean monthly consumption would decrease from 12 6 to 5 6 kiloliters which is below the clean water consumption recommended by the who however it is possible to reallocate the current subsidy to form an optimal tari without a free allowance which would increase welfare while leaving the water provider s revenue unchanged this optimal tariwould also reduce the number of households consuming below the who recommended level

estimating demand response in an extreme block pricing environment evidence from korea s electricity pricing system 2005 2014 abstract standard consumer theory predicts that under block pricing quantities consumed should bunch below block thresholds where marginal prices rise however researchers have previously found little or no evidence of bunching in this study i examine whether consumers respond to the marginal prices by using a different form of block pricing one that includes both marginal price and fixed charge increases at the threshold called increasing fixed charge block pricing under this pricing schedule the price increase at the threshold is more salient compared to the standard block pricing due to the increase in fixed charge as a result consumers are predicted to bunch below the thresholds and generate a zero density hole above the thresholds i empirically test this by using the case in south korea and find evidence that consumers tended to respond to price increase at the thresholds in 2005 and 2006 the considerable consumer bunching is observed around the thresholds however this evidence suddenly disappears after 2007 and never returned while the reasons for this disappearance are not fully understood the absence of consumer bunching suggests that consumers tend to respond to alternative pricing schedules rather than marginal price even with salient marginal price increases at the threshold

measuring the income elasticity of water demand the importance of publication and endogeneity biases we present the first study that examines the effects of publication selection in the literature estimating the income elasticity of water demand paradoxically more affected by publication selection are the otherwise preferable estimates that control for endogeneity attempting to correct simultaneously for publication and endogeneity biases we find that the mean underlying elasticity is approximately 0 15 or less the result is robust to controlling for more than 30 characteristics of the estimates and accounting for model uncertainty the differences in the reported estimates are systematically driven by differences in the tariff structure regional coverage data granularity and control for temperature

urban water demand with periodic error correction monthly demand for publicly supplied water to u s residences and businesses is estimated from a 10 year panel of 167 cities a periodic error correction model integrates monthly annual and long run time scales statistical consistency is validated by unit root tests adapted to the monthly frequency water and wastewater price elasticity of demand is estimated by sector calendar month and time horizon

hedging supply risks an optimal water portfolio although water supply diversification has been proposed as a solution to dwindling water reserves the optimal mix of natural and manufactured sources of water remains largely unexplored we develop a dynamic portfolio model of water supply that hedges against the supply risks from all potential water sources by taking into account the size of water reserves uncertainties of water flows as well as differences in supply costs the optimal portfolio shares for an existing water supply system are derived and compared with the observed contributions to total water stock revealing unexploited hedging opportunities between various naturally occurring water sources as well as a general over reliance on manufactured water the optimal solution implies that future supply augmentations should target natural sources of water ahead of manufactured water it is estimated that the optimization of the water supply portfolio for a medium sized city results in annual cost savings of up to 463 million

does uncertainty matter consumer behavior under three part tariffs in communication information and other industries three part tariffs are increasingly popular a three part tariff is defined by an access price an allowance and a marginal price for any usage in excess of the allowance empirical nonlinear pricing studies have focused on consumer choice under two part tariffs we show that consumer behavior differs under three part tariffs and assess how consumer demand uncertainty impacts tariff choice we develop a discrete continuous model of choice among three part tariffs and estimate it using consumer level data on internet usage our model extends prior work in accommodating consumer switching to competitors thereby capturing behavior in competitive industries more accurately our empirical work shows that demand uncertainty is a key driver of choice among three part tariffs consumers expected bill increases with the variation in their usage steering them toward tariffs with high allowances consequently demand uncertainty decreases consumer surplus and increases provider revenue a further analysis of consumers responsiveness to the different elements of a three part tariff under the provider s current pricing structure reveals that prices affect a consumer s tariff choice more than her usage quantity and that the allowance plays a strong role in consumer tariff choice based on our results we derive implications for pricing with three part tariffs

nonlinear pricing and the market for settling payments fedwire funds is a real time gross settlement system that uses a decreasing block pricing scheme to attract nonurgent payments a bank s optimal response to fedwire s pricing depends on its perceived benefits to settling nonurgent payments quickly if the urgency for immediate settlement is great enough a bank responds to marginal price otherwise it responds to average price we find banks respond to average price suggesting that fedwire s advantage over competing services of being able to provide immediate settlement is small moreover attempts to increase demand for fedwire services by lowering the cost of banks final block of payments may be ineffective if there is not a corresponding decrease in average cost

testing the behavior of rationally inattentive consumers in a residential water market abstract rationally inattentive consumers tend to apply simplified heuristics when making decisions we test the hypothesis of rational inattention in the context of residential water usage where water bills typically account for a small fraction of household expenditures and only attract casual attention we begin by rigorously testing whether or not residential water customers exhibit evidence of rational inattention we then propose a heuristic water demand model to explore the decision making of rationally inattentive consumers and validate the model by comparing the model with the discrete continuous choice model on attentive and fully informed decision makers in out of sample predictions