Estimation of Income and Price Elasticity of Kermanshah Drinking Water Demand

Document Type : Case Study

Authors

• H. Rezaee ¹
• Sh. Shojaa ²

¹ Payame Noor University of Damghan, Iran

² Shahrood University of Technology, Iran

https://doi.org/10.22067/jwsd.v7i3.85713

Abstract

One of the most important inputs in all economic sectors of Iran is water. The solution to the shortage of water resources in Iran is not more water supply, but an effective solution to adopt policies and measures that change the economic structure and pattern of water consumption. In this study, the income elasticity and price elasticity of Kermanshah urban water demand and the estimation of daily consumption of each person during the period 1392-1397 have been estimated. For this purpose, at first, the general form of water demand function was calculated by maximizing an Aston Gray utility function and was estimated using the VAR model, based on the Johansen method of Kermanshah urban water demand function. According to the results, urban water demand is inversely related to water prices and directly related to income. Price elasticity indicates a negative relationship between price changes and water demand. If the price of water increases by 10%, the demand for it will decrease by 4.3%. On the other hand, the absolute value of price elasticity and revenue elasticity of water is less than one. Also in this research, ARDL model has been used to investigate the long-term, short-term relationship, error correction test and tensile tests as a complementary and comparative method with VAR model of ARDL model. In both models, the price elasticity is less than one, ie with a 10% increase in price, consumption decreases by less than 10%. The non-zero price elasticity of water indicates that increasing tariffs can be used as a way to reduce water consumption, at least in the short term. The results showed that according to the criterion of the usefulness function of acetone, the minimum water consumption for each subscriber in Kermanshah is about 8.21 cubic meters (8210 liters) per month. According to the model, this amount is about 273 liters per day.
That's about 273 liters a day, according to model estimates.

Keywords

• Water Demand
• Price Elasticity
• VAR

Main Subjects

• Water Management and Economy

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