Estimation of Price and Income Elasticity of Residential Water Demand in the Czech Republic over Three Decades
Abstract
Literature on residential water demand is rich, however, there are few estimates of price and income elasticities for Central and Eastern Europe and for countries undergoing economic or political transitions. To cover this gap, we estimate residential water demand in the Czech Republic - which has undergone deep structural, institutional and economic changes over the last three decades.
Specifically, we analyse residential water demand from 1993-2016, when the price of water almost tripled, water consumption decreased by a third, and families became considerably richer. Controlling for price endogeneity, our estimates of price and income elasticity indicate low responsiveness of households.
The estimate of income elasticity is about +0.16 and robust across all model specifications, and the effect of income is decreasing with household wealth. Price elasticity is low on average, about -0.22, which is on the low end of existing estimates of demand elasticity.
While Czech households were more responsive to price changes during the 1990s period of economic transformation, in particular when household incomes were not increasing much, with the implied price elasticity of about -0.50, households became completely price irresponsive during the economic boom in the 2000s, even when the price of water was increasing considerably