Quantifying the structure of residential water demand in the United States: a Generalized Exact Affine Stone Index demand framework

Rafael Bakhtavoryan and Vardges Hovhannisyan

Agricultural and Resource Economics Review, 2022, vol. 51, issue 1, 68-85

Abstract: We utilize a Generalized Exact Affine Stone Index system to evaluate the structure of residential water demand that recognizes demand interrelationship between residential and bottled water in the United States, allowing for precommitted consumption. Further, we address expenditure and price endogeneity by accounting for the supply side of the price determination mechanism. A significant substitutability relationship between residential and bottled water is found, while substantial precommitments are established in both residential and bottled water consumption. Residential demand becomes price-elastic once the precommitted level is reached. Finally, ignoring substitutability, precommitments, or endogeneity distorts the demand structure, resulting in erroneous policy implications.

Date: 2022
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