Estimating the price elasticity of water

Abstract

Setting the price of water on a public distribution network taking into account only fixed and operational costs might not be sufficient. This is due to the fact that once prices are raised water demand may decrease, since consumers will either restrict their water intake or even consider alternative water suppliers. The problem is how to estimate the price elasticity of water, that is, the dependence of demand on price, so that this factor can also be taken into consideration. The idea is to focus on providing estimates of price and price elasticities for designing charging regimes, quantifying the impact of non-price factors of discretionary and non-discretionary water usage. This problem was proposed by AdP - ´Aguas de Portugal.