Estimation of Residential Water Demand with Imprecise Price Perception

Marie-Estelle Binet (), Fabrizio Carlevaro and Michel Paul
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Fabrizio Carlevaro: University of Geneva, Department of Economics, Switzerland
Michel Paul: CEMOI, University of Réunion, France

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: Based on a detailed sample of time unbalanced panel data on residential water consumption in the French overseas territory of Réunion, we investigate which water price specification should be included in an econometric analysis of residential water demand. To identify the relevant price variable, we estimate the residential demand function for water using the perceived price methodology developed by Shin (1985). The empirical results support the hypothesis that households respond to the average price perceived from the latest water bill. Households facing an increasing block rate schedule perceive a price of water that is generally lower than its actual marginal price. This conclusion emphasizes the relevance of a marginal price information policy to promote water saving.

Keywords: billing information; price perception; residential demand for water; time unbalanced panel data (search for similar items in EconPapers)
JEL-codes: C26 D12 Q25 (search for similar items in EconPapers)
Date: 2012-10
New Economics Papers: this item is included in nep-agr
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Citations: View citations in EconPapers (2)

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