A Discrete/Continuous Choice Approach to Residential Water Demand under Block Rate Pricing

Abstract

A discrete/continuous choice model of the residential demand for water under block rate pricing is presented, estimated, and compared to results of regression models. The empirical analysis uses a dataset from a previously published study, Nieswiadomy and Molina (1989), of household level panel data from Denton, Texas, for summer months from 1981 to 1985 with an increasing block rate in effect. The striking result is that the discrete/ continuous choice model produces price elasticity estimates near -1.6, which are much more elastic than previously published results based on regression models where the discrete choice is not explicitly modeled.