Price Responsiveness of Residential, Industrial and Commercial Water Demand in Sri Lanka

Dinusha Dharmaratna and Jaai Parasnis

No 44-10, Monash Economics Working Papers from Monash University, Department of Economics

Abstract: Appropriate pricing of water is critical for improving the efficiency of pipe-borne water supply systems in many developing countries. However, existing literature on residential, industrial and commercial water demand has primarily focused on developed countries. This paper estimates the demand for pipe-borne water from residential, industrial and commercial sectors in Sri Lanka. Price elasticity for residential consumers ranges from -0.06 to -0.58 and the income elasticity varies from 0.04 to 0.13. For industrial and commercial sectors, price is not a significant variable in determining water demand. These findings suggest that price increases, in isolation, may not substantially reduce the demand for water and hence have limited role in demand management. However, the inelastic nature of water demand can enable the water utility to improve its financial viability and revenues. The paper provides the empirical foundations for pipe-borne water planning and policies making in developing countries.

Keywords: water demand; water pricing; block pricing; Sri Lanka (search for similar items in EconPapers)
JEL-codes: C23 Q21 Q25 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2010-05
References: View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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