Water demand responds asymmetrically to rising and falling prices

Joachim Schleich and Thomas Hillenbrand

No S03/2019, Working Papers "Sustainability and Innovation" from Fraunhofer Institute for Systems and Innovation Research (ISI)

Abstract: This paper econometrically estimates residential water consumption in Germany between 2007 and 2013 based on a panel of almost 3000 supply areas. In particular, the analysis distinguishes periods of rising and falling water and sewage water prices. The short-run (long-run) price elasticity is estimated at around 4.2% (13%), but water demand appears to respond asymmetrically to rising and falling prices. When prices are rising, the short-run (long-run) price elasticity is around 6.5% (18%). When prices are falling, the short-run price elasticity is not statistically different from zero, and the long-run price elasticity is estimated at around 12%. Additional results illustrate that employing average prices instead of marginal prices results in substantially overestimating the price elasticity. These findings are particularly relevant for utilities and regulators planning to alter the tariff structure towards a higher fixed fee and a lower volumetric fee.

Keywords: water consumption; econometrics; rebound; tariff; price elasticity; panel data (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-agr, nep-eur and nep-reg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fisisi:s032019

DOI: 10.24406/publica-fhg-299543

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