Exploiting unanticipated change in block rate pricing for water demand elasticities estimation: Evidence from Indonesian suburban area

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Abstract

We exploit sudden changes in the marginal tariff scheme to estimate the price elasticity of water demand using households' and firms' data in Tangerang Regency, a part of the Jakarta Greater Metropolitan Area, where water demand management is imperative due to the city's growing population and industrial activities. A monthly water consumption dataset at the consumer level is used in our study. Using the regression discontinuity in time (RDiT) approach, we find the price elasticity of water demand is −0.32 for household consumers and inelastic to changes in price. In contrast, elasticity for industrial and commercial consumers is −1.16, implying a more elastic response. The results raise concerns that firms substitute for a cheaper water source, endangering the water resources sustainability in the area.

Original languageEnglish
Article number100161
JournalWater Resources and Economics
Volume32
DOIs
Publication statusPublished - Oct 2020

Keywords

  • Indonesia
  • Regression discontinuity in time (RDiT)
  • Urban water
  • Water demand elasticities

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