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Residential Water Use: Efficiency, Affordability, and Price Elasticity

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  • Ming-Feng Hung
  • Bin-Tzong Chie

Abstract

In practice, water pricing is the main economic instrument used to discourage the wasteful use of residential water. Owing to considerations of affordability, residential water is systematically underpriced because water is essential for life. Such a low price results in water being used inefficiently. This paper proposes a system that supplements the existing price system with a cap-and-trade measure to reconcile conflicts among the goals of residential water use. It forces all people (independent of income) to be faced with reasonable price signals and to use water efficiently. The poor could, however, gain from trade and afford water. By taking advantage of the agent-based model, a simulation of this system applied to Taipei, Taiwan shows that those with lower income per capita are better off under this system even though the equilibrium price of residential water is higher. The simulated average price elasticity of market demand is −0.449. Copyright Springer Science+Business Media Dordrecht 2013

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  • Ming-Feng Hung & Bin-Tzong Chie, 2013. "Residential Water Use: Efficiency, Affordability, and Price Elasticity," Water Resources Management: An International Journal, Published for the European Water Resources Association (EWRA), Springer;European Water Resources Association (EWRA), vol. 27(1), pages 275-291, January.
    • Handle: RePEc:spr:waterr:v:27:y:2013:i:1:p:275-291
    DOI: 10.1007/s11269-012-0185-z
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    9. Marcos García-López & Borja Montano & Joaquín Melgarejo, 2020. "Water Pricing Policy as Tool to Induce Efficiency in Water Resources Management," IJERPH, MDPI, vol. 17(10), pages 1-19, May.
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