Household water price and income elasticities under increasing-block pricing policy in China: an estimation using nationwide large-scale survey data

Abstract

Abstract Figuring out household water demand response is of importance to sustainable water pricing policy making and optimalization. The paper estimates price and income elasticities of residential water demand in China by using the unique dataset from Chinese Household Water Use Behavior Survey 2019 in 50 cities. Two instrumental variables of marginal water price and average water price are used to address the endogeneity in the context of increasing-block water pricing policy. Results show that price elasticity ranges from −0.170 to −0.543, meaning that the demand for water is inelastic. Income elasticity ranges from 0.062 to 0.133, indicating that water is a necessary commodity. It unveils that water scarcity cities have more sensitive price response. It verifies the effectiveness of the differential increasing-block water pricing schemes tailor-made to local water resources endowments. Besides, it shows that high water-consuming households have more sensitive price response. It suggests that implementing more stringent IBWP scheme for those households constitutes a promising policy improvement option in the future.