Evaluating Elasticity of Income and Price on Water Demand Using Pollak–Wales Method

Document Type : Research Paper

Authors

1 Ph.D Student of Economics, Ferdowsi University, Mashhad

2 Assist. Prof. of Water Engineering, Ferdowsi University, Mashhad

3 Assist. Prof. of Economics, Ferdowsi University, Mashhad

Abstract

Iran is located in an arid and semi-arid region and will be joining the ‘Thirsty States’ by 2025. However, water use efficiency and water services seem to be low and inadequate, as they do not match the emerging conditions of water scarcity. As part of the research efforts required to address the problems in this area, this paper endeavors to use a simple, efficient, precise, and practical method for determining the income and price elasticity of the domestic drinking water demand. The household income in this method is replaced by a good, measurable substitute index which is the household land and building areas. Log-log functions are presented for different blocks for the statistical period 2001-2004. Correlation coefficients obtained were above 40% in all the functions. The average income elasticity ranged from 0.704 to 0.411 for the first to the fifth blocks, respectively. This shows that water is a necessary and non-substitutable commodity in the household portfolio. The price demand elasticity was estimated using the modified Pollak–Wales method, price variations over two different time periods, and income elasticity over the statistical period. The price elasticity value varied from -0.3 to -0.01 for the second to fourth blocks, respectively. This indicates the inelasticity or low elasticity of water for current prices.

Keywords

References

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Journal of Water and Wastewater; Ab va Fazilab ( in persian )
Volume 20, Issue 1 - Serial Number 1
Serial number:69
March and April 2009
Pages 34-44

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