Private Enterprise and Financial Markets > Environment > Environmental Management, Law and Economics
Household Water Demand Estimation
By Miguel Bacharach, William J. Vaughan (03/95, ENP-106, En)
This working paper is being published with the sole objective of contributing to the debate on a topic of importance to the region, and to elicit comments and suggestions from interested parties. This paper has not gone through the Department's peer review process or undergone consideration by the SDS Management Team. As such, it does not reflect the official position of the Inter-American Development Bank.
To estimate the benefits of a potable water supply project, some idea of the parameters of the demand function is needed to calculate a Marshallian consumer's surplus welfare measure. Often, given a baseline estimate of pre-project consumption and price, an elasticity estimate can be used to reconstitute the underlying demand function and the consumer surplus integral (see Powers and Valencia 1980), but the elasticity has to be obtained from the econometric estimation of a demand relation.
Any estimate of the benefits of a reduction in the price of water due to a water supply project arrived at using an elasticity-based calculation will be sensitive to the magnitude of that elasticity. So will the benefits based on a method that uses estimated demand functions directly. This paper discusses the relative merits of the statistical procedures that can be used to obtain elasticity estimates or their underlying water demand functions.
Last updated: 01/16/07
