national multiple family submetering and allocation billing program ...
national multiple family submetering and allocation billing program ...
national multiple family submetering and allocation billing program ...
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A review of the literature unearthed a multitude of studies, each analyzing a different<br />
aspect of the relationship between water price <strong>and</strong> consumption. A review of more than 50 water<br />
dem<strong>and</strong> studies concluded that the typical range for price elasticity is -0.2 to -0.4 for total<br />
residential dem<strong>and</strong>, between –0.7 <strong>and</strong> –1.6 for residential outdoor dem<strong>and</strong>, <strong>and</strong> between –0.06<br />
<strong>and</strong> –0.8 for residential indoor dem<strong>and</strong> (Planning <strong>and</strong> Management Consultants 1984). Overall,<br />
water dem<strong>and</strong> studies in North America from 1951 to 1991 revealed a price elasticities that<br />
ranged from –0.01 to –1.38 (Hanemann 1998). The variability in elasticity estimates for<br />
residential dem<strong>and</strong> was investigated by Espey, Espey, <strong>and</strong> Shaw (1997). A meta-analysis was<br />
performed on 124 elasticity estimates from 24 journal articles from 1967 to 1993.<br />
Evapotranspiration rates, rainfall, pricing structure, <strong>and</strong> season were all found to significantly<br />
affect price elasticity. Income was also found to be an important explanatory variable, although<br />
it was not found to significantly affect price elasticity in their study. Residential versus<br />
commercial dem<strong>and</strong>, as well as long-run versus short-run price responsiveness, were also<br />
deemed influential. On the other h<strong>and</strong>, population density, household size, <strong>and</strong> temperature were<br />
not found to significantly affect price elasticity.<br />
Most studies have found that indoor dem<strong>and</strong> is generally less elastic than outdoor<br />
dem<strong>and</strong>. Because this study is concerned with multi-<strong>family</strong> housing units, where residents are<br />
rarely responsible for outdoor water use, indoor price elasticity is the most applicable. Howe<br />
<strong>and</strong> Linaweaver’s study in 1967 was the first time that residential dem<strong>and</strong> was separated into the<br />
two components of indoor <strong>and</strong> outdoor use. This study was instrumental in convincing people<br />
that price does have a significant impact on water consumption. In the 1967 Howe <strong>and</strong><br />
Linaweaver study, thirty-nine areas in the US were examined <strong>and</strong> it was found that indoor use,<br />
estimated from winter consumption, was relatively inelastic (-0.23). Outdoor dem<strong>and</strong> was more<br />
elastic, especially in the humid East compared to the dry West. Howe refined the study in later<br />
years, <strong>and</strong> found an indoor elasticity of –0.06 (1982). Danielson (1979) found an indoor<br />
elasticity of –0.30. Both studies also confirmed that indoor use was less elastic than outdoor use.<br />
Indoor use is less elastic than outdoor use because indoor uses tend to be fundamental to<br />
human survival <strong>and</strong> lifestyle. There are few substitutes for indoor water, beyond bottled water<br />
for drinking, <strong>and</strong> the many essential hygienic uses contribute to its inelasticity. Outdoors, it is<br />
less imperative that a car be washed or a lawn watered, <strong>and</strong> it’s this discretionary water use that<br />
makes it more elastic. In addition, water bills represent a small portion of an overall residential<br />
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