Estimating urban residential water demand: Effects of price structure, conservation, and education

Water demand equations are estimated using the most current American Water Works Association (1984) survey of 430 (of 600 largest) U.S. utilities. The data set was augmented by monthly rainfall and temperature data from the National Oceanic and Atmospheric Administration's climatological data. Demographic data were obtained from the U.S. Department of Commerce (1988). Besides the usual endogeneity problems involving block price structures this paper also examines the possible endogeneity of conservation and education programs. Three types of models were used: a marginal price model, an average price model, and Shin's (1985) price perception model. The results generally show that price elasticity is higher in the South and the West. Conservation does not appear to reduce water use, but public education appears to have reduced water usage in the West. The Shin (1985) tests in this study indicate that consumers react more to average than marginal prices in all regions.