Estimation of the effects of price on apartment water demand using cointegration and error correction techniques

Saeed Ghavidelfar, Asaad Y. Shamseldin and Bruce W. Melville

Applied Economics, 2016, vol. 48, issue 6, 461-470

Abstract: Water price is a key instrument in regulating water demand in the residential sector. Many empirical studies have assessed the effects of price through quantifying the price elasticity of water demand. However, most of these studies have mainly focused on the single-family housing rather the multifamily housing. An in-depth understanding of the price elasticity of multifamily housing water demand is paramount for water planners in order to properly manage water use in the fast growing intensive housing developments in urban areas. This study investigates both the long-term and short-term price elasticities of water demand in the residential apartments in Auckland central city. Using 6 years of monthly time series data, the price elasticities were estimated through cointegration and error correction methods. The results showed that the price elasticities of water demand were - 0.14 and - 0.12 in the short term and the long term, respectively. The price is inelastic yet negative and statistically significant, thus it can play a role in demand management.

Date: 2016
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DOI: 10.1080/00036846.2015.1083082

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