Spatial Determinants of Urban Residential Water Demand in Fortaleza, Brazil

Abstract

This paper aims at estimating the residential water demand function for the city of Fortaleza, Brazil, considering the potential impact of including spatial effects in the model. The empirical evidence is a unique micro-data set obtained through a household water consumption survey carried out in 2007. We estimated three econometric models, which have as explanatory variables the average/marginal price, the difference, income, number of male and female residents and the number of bathrooms, under different spatial specifications: the Spatial Error Model (SEM), the Spatial Autoregressive model (SAR), and finally, the Spatial Autoregressive Moving Average model (SARMA). Results suggest that the SARMA model is the “best” as shown by a series of tests. Such results contradict conclusions drawn by Chang et al. (Urban Geogr 31(7):953–972, 2010), House-Peters et al. (JAWRA J Am Water Resour Assoc 46(3), 2010), and Ramachandran and Johnston (2011). This means, among other things, that not controlling spatial effects is a key specification error, underestimating the effect of almost all variables in the model. Sometimes, these differences can be as high as 24.66 % and 13.32 % for price elasticity in the Average Price and the McFadden models, respectively.