national multiple family submetering and allocation billing program ...

CHAPTER 2 LITERAT URE REVIEW
As the population continues to grow, measures must be taken to ensure there is adequate
water supply to meet current and future demand. The capital investment, environmental
concerns, and regulatory obstacles inherent in the development of new water supplies often make
demand side management an attractive option. But what are the best and most effective
measures to curb the use of such an essential commodity as water? Economists typically
advocate the use of price while engineers typically advocate the use of efficient technology. In
fact, the union of the two ideas is the premise upon which submetering and ratio utility billing
systems (RUBS) are based. The extent to which pricing and efficient technology are effective
continues to be studied. This literature review begins with an examination of the role of price in
water consumption, moves to metering, and finally takes a look at the effect of current billing
methods on multi-family water use.
PRICE AND WATER DEMAND
The relationship between the retail price of water and consumption has been explored
extensively because of its implications for water planners and providers. Basic economics
assumes water price and consumption are inversely related, and a convenient way to quantify the
relationship is through price elasticity. Elasticity is defined as the percentage change in quantity
consumed for each percent change in price. An elasticity of one implies that a one percent
change in price results in a one percent decline in quantity consumed. Price elasticity measures
the sensitivity of water use relative to changes in the price of water, after controlling for various
influential factors such as weather and income (AWWA 2000). In general, the price elasticity of
water is negative because theoretically, as the price of water increases, water use decreases. A
price elasticity with an absolute value between zero and one is considered inelastic, or relatively
unresponsive to rate change. An absolute value greater than one is considered elastic. A
product’s elasticity depends on how many uses it has, the quantity and availability of its
substitutes, and its relative importance within the consumer’s overall budget (Schlette and Kemp
1991). Numerous studies have been conducted on this topic and a summary of some of the more
relevant studies can be seen in Table 2.1.
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