The price elasticity of water demand for Sydney residential consumer segments : a panel econometrics study

Abstract

Planning for future water demand and price paths requires a nuanced understanding of the impact of potential price signals on customers' level of usage. Most existing water price elasticity studies examine the ability of water usage prices to influence aggregate water use. Unlike most studies, this study primarily aims to investigate the water price elasticity of different Sydney households, which are uniquely segmented, based on dwelling type, socio-economic status and geographical location. Separate dynamic panel data models were specified for each of the 14 segments, using the econometric estimation method of General Method of Momentum (GMM). A total of 18,892 households' water consumption levels were individually recorded, between the period January 2004 and June 2010. The analysis found that not all households react to the change in water price in the same way. Households with relatively high discretionary water use were able to reduce their water use as the water price increased, whereas financially disadvantaged households did not show the same ability to change their water usage to compensate for the increase in water price. Policy makers are therefore encouraged to keep these differences in mind when they set the water price or consider using water price as a demand management tool during drought. In addition, the results further illustrate the need for any water consumption modelling to consider the different consumer segments and to refine the model specifications for each segment to provide accurate information relevant to the consumer segment of interest.

Date of Award	2013
Original language	English