Household Water Demand Seasonal Elasticities: A Stone-Geary Model under an Increasing Block Rate Structure

Andrew J. Clarke, Bonnie G. Colby and Gary D. Thompson

Abstract

Using household-level panel data from Tucson, Arizona, and a unique set of highly disaggregated control variables, we estimate residential demand for water via a Stone-Geary specification. The Stone-Geary functional form allows price elasticity of demand to vary with quantity consumed, price, and income and enables estimation of a threshold level of consumption below which demand is considered perfectly price inelastic. An encompassing test of consumer price response reveals evidence favoring a lagged average price specification rather than one using lagged marginal price. The estimated model also finds substantial seasonal variation in price elasticity and declining consumer price responsiveness. (JEL C23, Q25)

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