Measuring the Income Elasticity of Water Demand: The Importance of Publication and Endogeneity Biases

Tomas Havranek, Zuzana Irsova and Tomas Vlach

Abstract

We present the first study that examines the effects of publication selection in the literature estimating the income elasticity of water demand. Paradoxically, more affected by publication selection are the otherwise preferable estimates that control for endogeneity. Attempting to correct simultaneously for publication and endogeneity biases, we find that the mean underlying elasticity is approximately 0.15 or less. The result is robust to controlling for more than 30 characteristics of the estimates and accounting for model uncertainty. The differences in the reported estimates are systematically driven by differences in the tariff structure, regional coverage, data granularity, and control for temperature. (JEL C83, Q25)

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