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Environmental and Resource Economics

, Volume 59, Issue 1, pp 137–166 | Cite as

Microeconometric Analysis of Residential Water Demand

  • Cristina Lopez-MayanEmail author
Article

Abstract

This paper develops a structural model for obtaining price elasticities and evaluating consumer’s response to changes in nonlinear tariffs when only panel data on household consumption are available. The model and the empirical strategy address problems implied by nonlinear tariffs, existence of a fixed cost, and use of limited data, giving rise to a random effects model with a nonlinear individual effect. Results show that the estimated model does well at fitting data and demand is inelastic, although elasticity varies by initial consumption block. Then, I estimate welfare consequences of implementing several demand policies.

Keywords

Household demand Increasing-block pricing Indirect inference  Kinked budget constraint Panel data  Price-elasticity Utilities 

JEL Classification

D12 L95 Q21 Q25 Q28 

Notes

Acknowledgments

I am especially grateful to Manuel Arellano for his constant encouragement and advice. I also wish to thank Samuel Berlinski, Stéphane Bonhomme, Jesús Carro, Guillermo Caruana, Thierry Magnac, Pedro Mira, Graciela Sanromán, Enrique Sentana and seminar participants at CEMFI, IDEGA-Universidade de Santiago de Compostela, the EEA-ESEM Conference in Milan and the SAEe in Zaragoza for helpful comments and discussions. I am also very grateful to the water utility that provides the data. The work in this paper is part of my Thesis at CEMFI. Financial support from Fundación Ramón Areces during the Ph.D. is gratefully acknowledged.

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Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Departament d’Economia AplicadaUniversitat Autonoma de BarcelonaBellaterra, Cerdanyola del VallesSpain

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