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Heterogeneous responses to price: Evidence from residential water consumers

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  • El-Khattabi, Ahmed Rachid
  • Eskaf, Shadi
  • Isnard, Julien P.
  • Lin, Laurence
  • McManus, Brian
  • Yates, Andrew J.

Abstract

Public utilities may respond to demand or supply fluctuations by adjusting prices to ration quantity. This approach's efficacy and distributional impacts depend on households' heterogeneous price sensitivity, which we estimate in a market for residential water usage. Our household-level panel data features a large change in marginal water prices and a novel measure of local hydrological stress. Contrary to prior research, we find that heavy-usage households are more price sensitive than other households, and price elasticity is largely invariant to household wealth. These findings suggest that price-based rationing can be an effective tool to reduce water usage.

Suggested Citation

  • El-Khattabi, Ahmed Rachid & Eskaf, Shadi & Isnard, Julien P. & Lin, Laurence & McManus, Brian & Yates, Andrew J., 2021. "Heterogeneous responses to price: Evidence from residential water consumers," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    • Handle: RePEc:eee:jeeman:v:107:y:2021:i:c:s0095069621000139
    DOI: 10.1016/j.jeem.2021.102430
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    Cited by:

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    4. Wichman, Casey, 2024. "Efficiency, Equity, and Cost-Recovery Trade-Offs in Municipal Water Pricing," RFF Working Paper Series 24-18, Resources for the Future.

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    Water demand; Price elasticity;

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