Heterogeneous responses to price: Evidence from residential water consumers
Ahmed Rachid El-Khattabi,
Julien P. Isnard,
Brian McManus and
Journal of Environmental Economics and Management, 2021, vol. 107, issue C
Public utilities may respond to demand or supply fluctuations by adjusting prices to ration quantity. This approach's efficacy and distributional impacts depend on households' heterogeneous price sensitivity, which we estimate in a market for residential water usage. Our household-level panel data features a large change in marginal water prices and a novel measure of local hydrological stress. Contrary to prior research, we find that heavy-usage households are more price sensitive than other households, and price elasticity is largely invariant to household wealth. These findings suggest that price-based rationing can be an effective tool to reduce water usage.
Keywords: Water demand; Price elasticity (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:107:y:2021:i:c:s0095069621000139
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