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Does Marginal Price Matter? A Regression Discontinuity Approach to Estimating Water Demand

Shanthi Nataraj and Michael Hanemann ()

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: Although complex pricing schedules are increasingly common in utility billing, it is difficult to determine whether consumers respond to complicated marginal prices because price changes are often confounded with simultaneous demand shocks or non-price policies. To overcome this challenge, we exploit a natural experiment - the introduction of a third price block in an increasing block pricing schedule for water - in Santa Cruz, California. Using a regression discontinuity design, we find that consumers do respond to changes in marginal price. Doubling marginal price led to a 12% decrease in water use (500 cubic feet per bill) among high-use households.

Keywords: water demand; regression models; price policy; consumer behavior (search for similar items in EconPapers)
Date: 2008-11-11
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Related works:
Journal Article: Does marginal price matter? A regression discontinuity approach to estimating water demand (2011) Downloads
Working Paper: Does Marginal Price Matter? A Regression Discontinuity Approach to Estimating Water Demand (2008) Downloads
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