Abstract

The demand for water remains a hot button issue among economists and policy makers. In this paper, we study the effects of water pricing on two tiers of consumers: normal and heavy users. We show that heavy users are less price-sensitive to the price of water than normal users are. Our price elasticity estimates are within the range of previous literature; we estimate a price elasticity of 0.4 for the residential demand for water. A logit regression model is employed in order to determine what characteristics heavy users possess. We find that having more residents living in a household and residents with higher income are significant characteristics of heavy-usage households. Finally, we provide a robustness check in the form of estimating a rare events logit model. Our rare events logit model estimates are consistent with those of the regular logit estimates.