Working Paper: NBER ID: w13573
Authors: Sheila Olmstead; W. Michael Hanemann; Robert N. Stavins
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.
Keywords: No keywords provided
JEL Codes: D12; L95; Q21; Q25; Q28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| household characteristics (R20) | water demand (R22) |
| external factors (O36) | water demand (R22) |
| price structure (D49) | behavioral responses to price structures (D40) |
| behavioral responses to price structures (D40) | price elasticity of water demand (Q25) |
| underlying heterogeneity among water utility service areas (L95) | price elasticity of water demand (Q25) |
| price structure (increasing block prices) (D49) | price elasticity of water demand (Q25) |
| price structure (uniform prices) (L11) | price elasticity of water demand (Q25) |
| price structure (D49) | water demand (R22) |