Do Consumers React to the Shape of Supply? Water Demand under Heterogeneous Price Structures
Michael Hanemann () and
Discussion Papers from Resources For the Future
Urban water pricing provides an opportunity to examine whether consumers react to the shape of supply functions. We carry out an empirical analysis of the influence of price and price structure on residential water demand, using the most price-diverse, detailed, household-level water demand data yet available for this purpose. We adapt the Hausman model of labor supply under progressive income taxation to estimate water demand under non-linear prices. Ours is the first analysis to address both the simultaneous determination of marginal price and water demand under block pricing and the possibility of endogenous price structures in the cross section. In order to examine the possibility that consumers facing block prices are more price-responsive, all else equal, we test for price elasticity differences across price structures. We find that households facing block prices are more sensitive to price increases than households facing uniform marginal prices. Tests for endogenous price structures cannot rule out a behavioral response to the shape of supply, but suggest that observed differences in price elasticity under supply curves of varying shapes may result, in part, from underlying heterogeneity among utility service areas.
Keywords: Non-linear pricing; water demand; price elasticity (search for similar items in EconPapers)
JEL-codes: D12 Q21 Q25 Q28 L95 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-05-29.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-05-29.pdf)
Working Paper: Do Consumers React to the Shape of Supply? Water Demand under Heterogeneous Price Structures (2005)
Working Paper: Do Consumers React to the Shape of Supply? Water Demand Under Heterogeneous Price Structures (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-05-29
Access Statistics for this paper
More papers in Discussion Papers from Resources For the Future
Bibliographic data for series maintained by Webmaster ().