Quantifying the structure of residential water demand in the United States: a Generalized Exact Affine Stone Index demand framework

Rafael Bakhtavoryan,Vardges Hovhannisyan

doi:10.1017/age.2021.18

Abstract

AbstractWe utilize a Generalized Exact Affine Stone Index system to evaluate the structure of residential water demand that recognizes demand interrelationship between residential and bottled water in the United States, allowing for precommitted consumption. Further, we address expenditure and price endogeneity by accounting for the supply side of the price determination mechanism. A significant substitutability relationship between residential and bottled water is found, while substantial precommitments are established in both residential and bottled water consumption. Residential demand becomes price-elastic once the precommitted level is reached. Finally, ignoring substitutability, precommitments, or endogeneity distorts the demand structure, resulting in erroneous policy implications.

Highlights

Fresh water scarcity has been intensifying recently because of severe droughts brought by climate change, salinizing aquifers, food loss and waste, food system inefficiencies, etc. (Postel 2000; World Economic Forum 2019)
In the United States, about 88 percent of the residential water is provided by public suppliers, while the remaining 12 percent comes from self-supplied withdrawals by means of wells and rainwater collected in cisterns (Dieter et al 2018a, 2018b)
We briefly present the Generalized Exact Affine Stone Index (GEASI) demand system underlying our empirical analysis. It is based on the Exact Affine Stone Index (EASI) model of Lewbel and

Summary

Introduction

Fresh water scarcity has been intensifying recently because of severe droughts brought by climate change, salinizing aquifers, food loss and waste, food system inefficiencies, etc. (Postel 2000; World Economic Forum 2019). Fresh water scarcity has been intensifying recently because of severe droughts brought by climate change, salinizing aquifers, food loss and waste, food system inefficiencies, etc. (Postel 2000; World Economic Forum 2019). Demand for water has been on the rise due to population growth, as well as expanding sectors of economies (e.g., agricultural production, food manufacturing, retailing, and foodservice) driven by intensive farming practices and economic growth (Harris 2015). This has contributed to the heightened urban/agricultural conflict (i.e., residential water vs economic resource uses such as agricultural production) and freshwater overextraction, which can adversely affect future water supplies and can endanger aquatic ecosystems (e.g., Postel 2000)

Bakhtavoryan and Hovhannisyan

Methodology

Findings

Estimation procedure and empirical results