Residential Water Demand in the Northwest of Spain

A panel of monthly aggregate data from the Northwest of Spain is used to estimate domestic water demand functions under linear and non-linear tariffs. Price, billing, climatic, and sociodemographic variables are used as explanatory variables. The use of intraannual data constitutes a relevant contribution in the European context. Overall marginal price elasticity estimates lie between –0.12 and –0.17. Summer-only elasticities and elasticities associated with uses beyond the effectively free allowances seem significantly higher. Climatic variables significantly affect monthly use, although probably less than in other wealthier and drier areas. Domestic water use appears to be a normal good.     

Difference or Ratio: Implications of Status Preference on Stagnation

We consider a dynamic macroeconomic model where households derive utility from wealth comparisons. Measure of relative affluence can be the ratio to, or the difference from, the social average. These two specifications lead to quite different equilibrium consequences: under the ratio specification full employment is always realised, whereas under the difference specification persistent shortage of aggregate demand can result. Using data of an experiment on status concern, we empirically find that the difference specification of relative affluence fits the data better than the ratio specification. Our work may help in understanding mechanisms behind recent stagnation in developed economies.     

Are price strategies effective in managing demand of high residential water users?

Encouraging water use efficiency and water conservation is one of the primary goals of water utility companies nationwide. This study estimates price elasticity of residential water demand to measure the responsiveness of water use to price changes, particularly for high water users. Household-level water use data for high residential water users from Central Florida were analysed using 3-stage least square (3SLS). Estimated price elasticity ranges between ?0.07 and ?0.14. This price elasticity estimate is below most of the estimates reported in the literature (in absolute value). The results imply that for price strategies to be effective in managing water demand of high residential water users, a significant price increase would be needed. Overall, this study highlights the importance of designing water conservation policies tailored to specific groups of customers, and the importance of using these strategies effectively and fairly for different customer groups.     

Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions*

An aggregate daily water demand for Sydney is estimated and used to calculate the difference in Marshallian surplus between using the metered price of household water to regulate total consumption versus mandatory water restrictions for the period 2004/2005. The loss in Marshallian surplus from using mandatory water restrictions is calculated to be $235 million. On a per capita basis this equates to approximately $55 per person or about $150 per household – a little less than half the average Sydney household water bill in 2005.     

THE (AGGREGATE) DEMAND FOR STATE‐LOTTERY TICKETS: WHAT HAVE WE REALLY LEARNED?

Lottery‐demand models using aggregate data are often used to make inferences regarding individual behavior, the most important being the distributional burden of lottery‐ticket expenditures. It is shown here that estimates for the income elasticity and the cross‐price elasticity will only be representative of individual behavior under extremely restrictive assumptions. In fact, estimation of aggregate‐demand models presupposes that the income elasticity is equal to one. Cross‐sectional analyses using microlevel data face similar restrictions on consumer behavior. Remedies are discussed, but more conclusive evidence on the distributional burden of lotteries will remain elusive until better individual‐level data become available. (JEL D11, H71, H22)     

Modelling seasonality in residential water demand: the case of Tunisia

This article proposes to model seasonal patterns of residential water demand using the techniques of seasonal integration and cointegration. The methodology is applied to quarterly aggregate time series data for Tunisia (1980–2007), applying the same increasing, multi-step pricing scheme in the whole country. First, a seasonal cointegration analysis demonstrates the relevance of a pricing policy that increases the size of the lower consumption block in summer. Second, the nonseasonal cointegration analysis reveals a relatively high price elasticity for the highest consumption block. Therefore, we also propose to increase the tariff progressivity to promote water savings. This modified pricing scheme will help to achieve goals of environmental protection and social equity.     

Testing price equations

How inflation and unemployment are related in both the short run and long run is perhaps the key question in macroeconomics. This paper tests various price equations using quarterly U.S. data from 1952 to the present. Issues treated are the following. (1) Estimating price and wage equations in which wages affect prices and vice versa versus estimating “reduced-form” price equations with no wage explanatory variables. (2) Estimating price equations in (log) level terms, first difference (i.e., inflation) terms, and second difference (i.e., change in inflation) terms. (3) The treatment of expectations. (4) The choice and functional form of the demand variable. (5) The choice of the cost-shock variable. The results suggest that the best specification is a price equation in level terms imbedded in a price-wage model, where the wage equation is also in level terms. The best cost-shock variable is the import price deflator, and the best demand variable is the unemployment rate. There is some evidence of a nonlinear effect of the unemployment rate on the price level at low values of the unemployment rate. Many of the results in this paper are contrary to common views in the literature, but the empirical support for them is strong.     

The response of aggregate demand to income,money supply,and price level

The response elasticities of (nominal) aggregate demand to the price level and to other nominal variables (e.g., money supply) are both positive but smaller than one. Aggregate demand is less/as responsive to real income than/as to the price level in the short/long run. Real aggregate demand is less/as responsive to real income than/as nominal aggregate demand is to the price level in the short/long run. Some uses of these results are indicated.     

The Regional Demand for Petrol in Australia*

The regional demand for petrol in Australia is estimated using quarterly data on a State basis for the period from the September quarter 1958 through the June quarter 1981. A dynamic demand model is postulated and estimates obtained using an iterative Zellner procedure. The results suggest that per capita petrol demand is not income elastic as reported in other studies, and support the hypothesis that demand is price inelastic. In addition, the States exhibit statistically significant differential responses to price and income shocks. This implies that the specification of a single national demand function may be misleading.     

Water pricing reform analysis: alternative scenarios

This paper compares alternative transition paths to efficient water pricing. The analysis is based on representative agent model, where two sources of water supply exist: exhaustible groundwater stock and a renewable substitute. Two alternative water pricing reforms are considered: gradual tariff increase and multipart pricing with first block sold at the initial pre-reform tariff and additional water sold at higher prices (block pricing reform). Under block pricing reform, the amount of water offered at low price gradually diminishes. The results of comparative analysis prove that under the same reform time horizon block pricing is preferred to the gradual tariff increase.     

Environmental aspects of water price formation. An empirical investigation of the cost of ground water protection

This paper tries to develop a scarcity price for groundwater resources in the Federal Republic of Germany (FRG). The present legal framework in the FRG is based on quantity regulation. This framework, as well as the quantitative structure of demand and supply, is analysed. In the absence of market values, a model calculation for water protection is carried out to estimate the scarcity price of water. According to this model calculation, the average water price should be twice as high as it is. The implications of such a price development for the demand side are being analysed.     

Business Demand for Broadband Access Capacity

Using data garnered from a quarterly survey of U.S. business establishments from 2Q2000 through 1Q2001, the study estimates an aggregate model of business demand for broadband access capacity. The primary goal is to estimate price elasticities for the demand for access capacity conditional on a business establishment having made the decision to adopt some form of broadband access. The primary findings are (1) on average, the demand for broadband access capacity is price inelastic; (2) the sensitivity to price differs substantially across establishments of different sizes with small establishments exhibiting the greatest sensitivity to price; and (3) the estimated elasticities have important implications for public policies designed to extend broadband networks to unserved areas.     

Complementarity between water pricing, water rights and local water governance: A Bayesian analysis of choice behaviour of farmers in the Krishna river basin, India

To ensure efficient water allocation and use, policy designers have adopted various strategies, including price setting, decentralising irrigation water management or improving water rights. Most of these strategies have been applied individually, without considering the complementary relationships between them. This paper uses a discrete choice model to analyse the scope for combinations of tools for irrigation water demand management and farmers' acceptance of these. In terms of local irrigation water governance, the presence or absence of collective irrigation water management, in the form of a Water Users Association, is considered. Water rights are specified in terms of the duration and quality of the entitlement and its transferability. Finally, four types of water pricing methods (area, crop, block and volumetric pricing) are considered. Using a choice experiment, we elicit the most preferred water pricing method, under different water rights situations, at different price levels and under various contexts for local irrigation water governance. Our results indicated that under conditions of improved water rights, preference for volumetric pricing increases, whilst the presence of a Water Users Association reduces this preference. Furthermore, it was found that using an appropriate combination of water demand management tools considerably increases the willingness to pay for a change in scenario.     

PRICE DISPERSION AND DEMAND UNCERTAINTY: EVIDENCE FROM U.S. SCANNER DATA

I use the Prescott (1975) hotels model to explain variations in price dispersion across items sold by supermarkets in Chicago. The effect of uncertainty about aggregate demand on price dispersion is highly significant and quantitatively important: My estimates suggest that more than 40% of the cross‐sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good.     

ω‐Homothetic Preferences: Theory and Applications

This paper develops a new class of homothetic preferences which generate Marshallian demand curves for individual goods which can be concave, convex or linear in own price under the assumption that agents treat aggregate price indices as given (as in Dixit‐Stiglitz, 1977). The preferences are represented by a cost function which has two parameters: one determining the curvature of the Marshallian demand; the other determining the elasticity of demand when all prices are equal. The elasticity of demand varies with relative prices. Illustrative examples are given of Cournot duopoly and exchange rate pass‐through.     

THE AD-AS MODEL AND ITS SOLUTIONS: SOME NEW RESULTS IN A DISEQUILIBRIUM PERSPECTIVE*

This paper discusses the logical foundation and the solutions of a microfounded aggregate demand … aggregate supply model under the disequilibrium hypothesis. We first show that a) the latter hypothesis is the only one ensuring model consistent expectations and that b) price predetermination, more than price flexibility, should be embodied in an AD-AS framework. Then we develop a full AD-AS scheme, both under excess supply and excess demand for labour. We prove that in the latter case no well defined equilibrium exists. Finally, we discuss stability and perform some comparative statics exercises.     

Determinants of food consumption in rural Sierra Leone: Application of the quadratic expenditure system to the consumption-leisure component of a household-firm model

This paper reports the application of a quadratic expenditure system with demographic variables to the household consumption-leisure choice component of a household-firm model. A system of seven commodities is estimated: including five foods, non-food and leisure. Appropriate for such a level of disaggregation a demand system is used, the Quadratic Expenditure System, which allows for a flexible relationship between full income and commodity expenditures without sacrificing parsimony in parameters. Demographic data on households are explicitly incorporated into the model allowing for a richer specification than can be achieved by using per capita variables. The data are from a cross-section survey of households in rural Sierra Leone. Price variation exists by region, permitting estimation of a complete demand system. Engel curves are found to be significantly non-linear, with marginal expenditure on rice, the major staple, declining with higher income. Most foods are found to be reasonably price responsive with sizeable own price substitution effects, declining with higher income. Aggregate labor supply is found to be price inelastic.     

Price behaviour in the Italian manufacturing industry

This paper sets out to test the hypothesis that the price-cost margins of Italian manufacturing industries are influenced by excess domestic demand and by international prices of manufactured products. Using annual data (1956–1982) a mark-up equation is estimated for each of the twelve industries in which the manufacturing sector has been disaggregated. The ratio of industry price to average total cost is functionally related to the ratio of international price to domestic cost and a measure of excess demand. On the basis of the estimates, which are obtained by Maximum Likelihood techniques, and some specification tests, it is concluded that both factors influence pricing behaviour although their effect is not uniformly significant in every sector.     

IMPACT OF PRICING STRUCTURE SELECTIVITY ON URBAN WATER DEMAND

Interest in demand management policies has intensified as residential water demand has grown in the United States. Using data from the 1984 American Water Works Association (AWWA) survey, the study here provides an empirical analysis of the differences in price elasticities of demand across water pricing block structures and examines these structures' "conservation-orientedness." However, a potential sample selection bias exists. That is, in cities where people are more interested in conservation, utility managers may be more likely to select a rate structure that they believe is conservation-oriented–an increasing block structure, for example. Managers' selectivity bias may cause research results either to understate or to overstate a particular block structure's impact on water conservation. The analysis here corrects for this selectivity bias in estimating water demand and tests whether consumers respond to average prices or to marginal prices. Correcting for selectivity bias involves an explicit analysis of the factors that influence utility managers' selection of rate structures. Estimating water demand under increasing and decreasing block structures suggests that sample selection bias remains a problem worthy of further investigation.