| With water being a scarce and necessary good it has been long looked at as a demand puzzle. The nature of how the good is priced leads to the question of which pricing metric, average or marginal price, affects demand. In combination with a lump sum income effect, defined at virtual income this paper estimates pricing elasticity under both metrics. With non-linear block pricing structures there is an issue of simultaneity that needs to be address. In this paper a two stage least squares approach is identified and utilized to get rid of the upward bias and estimate the true price elasticity. Furthermore the data is split into different conditions to see how households react to changes in prices during different seasons and under different block pricing structures. |
