An Estimation of Residential Water Demand Using Co-Integration and Error Correction Techniques

Martinez-Espineira, Roberto (2005): An Estimation of Residential Water Demand Using Co-Integration and Error Correction Techniques. Forthcoming in: Journal of Applied Economics

Abstract

In this paper short- and long-run price elasticities of residential water demand are estimated using co-integration and error-correction methods. Unit root tests reveal that water use series and series of other variables affecting use are non-stationary. However, a long-run co-integrating relationship is found in the water demand model, which makes it possible to obtain a partial correction term and to estimate an error correction model. The empirical application uses monthly time-series observations from Seville (Spain). The price-elasticity of demand is estimated as around -0.1 in the short run and -0.5 in the long run. These results are robust to the use of different specifications.

• Item Type: MPRA Paper
• Language: English
• Keywords: seasonal unit roots; residential water demand; price elasticity; time-series; co-integration; Error Correction Model
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis

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