Unobserved heterogeneity and temporal instability in an analysis of household water consumption under block rate pricing

Abstract

Abstract There is a lack of studies investigating household water consumption while considering the possible heterogeneity in the observed data and its temporal instability, often resulting in inconsistent and biased parameter estimations and, as a result, inaccurate forecasting of household water consumption. To address these constraints, the current study investigates temporal shifts in the household water consumption pattern and the effects of different socioeconomic factors on forecasting household water consumption. Using the results of a household survey performed seasonally in three major cities in Northern Jordan over a 4-year period, separate seasonal models of water consumption are estimated using three alternate modeling approaches to account for possible unobserved heterogeneity. Likelihood ratio tests were performed to investigate the temporal stability of the models' estimations over different seasons across the 4-year period. The findings of these tests indicated that the data are temporally stable over two datasets (the summer and winter seasons). Also, the findings revealed that household water consumption is influenced by a variety of factors, with the impact of many of these factors varying across observations. Finally, the findings highlight the need for additional research into how unobserved heterogeneity can be best modeled in temporal contexts for accurate water consumption forecasting.