A Quantile Regression Approach to the Heterogeneity in Price Elasticity of Domestic Water Demand

Mónica Maldonado-Devis () and Vicent Almenar-Llongo ()
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Mónica Maldonado-Devis: EDEM Business School
Vicent Almenar-Llongo: Catholic University of Valencia

Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), 2024, vol. 38, issue 12, No 19, 4866 pages

Abstract: Abstract This paper examines the problem of unobserved heterogeneity in urban water demand. It uses a panel quantile regression (QR) approach to focus on segments of consumers with different levels of water consumption. This estimation strategy is applied to a rich set of panel microdata capturing the consumption of water for 4,023 households in Valencia (Spain) between the years 2009 and 2011. To capture heterogeneity in a city’s residential household water consumption, a QR approach is applied to the specified water demand model, enabling analysis for different quantiles (levels) of consumption. The QR shows the behaviour of the parameters for different consumption levels. It enables differentiation of consumer reactions to different independent variables at each quantile of the distribution of the dependent variable. The results provide strong evidence of unobserved heterogeneity at different levels. This approach is useful in that it can lead to better-informed tariff design by providing an understanding of heterogeneity in price elasticities.

Keywords: Domestic water demand; Intra-urban analysis; Unobserved heterogeneity; Quantile regression; IRT tariffs; Microdata database (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11269-024-03891-z

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