Residential Water Demand under Alternative Rate Structures: Simulation Approach

Abstract

Econometricians have long studied the effect of price on residential water demand and the impact on water use of the rate (tariff) structure in which price signals are embedded. This paper applies an existing deductive model of residential water use for the intermittent supply system in Amman, Jordan and simulates demand responses across a cross section of households over many uniform, increasing block, and linear price (quadratic charge) rate structures at historically low and significantly higher prices. Results show inelastic piped water demand responses for all rate structures at historically low prices similar to findings from a prior econometric study for Amman. However, piped water demand turns more elastic when prices rise above $0.50/ m3 with uniform rates showing the most elastic response. But results also highlight several complications to determine and interpret price elasticity of demand under different rate structures. They also illustrate trade-offs among rate structures and rate structure ...