Assessing the impact of price and non-price policies on residential water demand: a case study in Wisconsin

Abstract

This paper reports an investigation of the impact of price policies (PP) and non-price policies (NPP) on residential water demand. Using a sample of US water utilities located in Wisconsin, residential water demand was estimated by taking into account the fact that some of the characteristics of local communities that determine PP and NPP choices may also influence residential water consumption levels. It is first shown that neglecting endogeneity of PP or NPP may lead to biased parameter estimates. Second, it is demonstrated that the policy mix (PP or NPP) may be as important as the level of prices for determining water consumption. Lastly, evidence is provided that dissemination efforts made by local communities to promote NPP drive the effectiveness of those policies.

Keywords:

• water demand
• residential users
• price policies
• non-price policies
• price elasticity
• US

Acknowledgements

The author would like to thank the Public Service Commission of Wisconsin for making the data on water use in Wisconsin available. Special thanks to Jeffrey Ripp who kindly transmitted the original PSC database on conservation and efficiency efforts by water utilities in Wisconsin. All remaining errors or approximations are of course imputable only to the author of this article.

Notes

1. See Reynaud et al., (2005) for an application of this method in the context of choice of pricing schemes by Canadian municipalities.

2. This is a simplified form of the water-demand function with BFG selectivity correction. The interested reader may refer to Bourguignon et al., (2007) for detailed expression of the correction terms.

3. All estimates are available from the authors upon request. To save space, we present the results only for regimes II_NPP, II_PP and III.

4. In California, Renwick and Archibald (1998) found that low-income households are more than five times as price responsive as relatively wealthy households.

5. To save space, we do not present the estimate of the residential water demand for local municipalities with neither PP nor NPP. However, detailed results are available from the authors upon request.

6. Reynaud et al., (2005) reported that Canadian residential water users are twice as sensitive to water price changes when they face increasing block rates, compared to unit water price or decreasing block rates.

7. See for instance Halich and Stephenson (2009), who have shown in a sample of US municipalities that only the most intense NPP in terms of informational efforts have succeeded in achieving even a moderate reduction in water use.