Can Prices Communicate Water Scarcity? A Reduced-Form Model Estimation For Water Demand Under Nonlinear Prices

Increasing block pricing structures are prevalent in water markets across North America.This thesis examines water demand under nonlinear pricing with a reduced form model using instrumental variables.The model estimates income and price elasticity of demand taking into account household and weather characteristics.Water demand is found to be price inelastic and positively correlated with income,average temperature,and water-intensive landscaping choices.Average precipitation has negative effects on demand.The estimated model detects a discrepancy between household survey responses regarding conservation and actual water demand.Households survey responses with respect to conservation practices have no statistically significant impact on demand and are counter-intuitive,meaning some conservation efforts lead to increased demand.Overall results suggest that given the political context of water pricing,in which price is not determined through a market based approach and is kept artificially low,conservation is critical yet challenging in the face of increasing global population,climate chance,and economic growth...