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Reynaud et al. 2005
Reynaud, A., Renzetti, S. and Villeneuve, M. (2005). Residential water demand with endogenous pricing: The Canadian Case. Water Resources Research 41: doi: 10.1029/2005WR004195. issn: 0043-1397.

In this paper, we show that the rate structure endogeneity may result in a misspecification of the residential water demand function. We propose to solve this endogeneity problem by estimating a probabilistic model describing how water rates are chosen by local communities. This model is estimated on a sample of Canadian local communities. We first show that the pricing structure choice reflects efficiency considerations, equity concerns, and, in some cases, a strategy of price discrimination across consumers by Canadian communities. Hence estimating the residential water demand without taking into account the pricing structures' endogeneity leads to a biased estimation of price and income elasticities. We also demonstrate that the pricing structure per se plays a significant role in influencing price responsiveness of Canadian residential consumers.

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Abstract

Keywords
Policy Sciences, Demand estimation, Policy Sciences, Regional planning, Policy Sciences, System operation and management, Policy Sciences, System design, Canada, endogenous bias, price elasticity, residential demand
Journal
Water Resources Research
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Publisher
American Geophysical Union
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