Modelling residential water demand in Queensland, Australia: A comparative analysis of pricing structures and estimation techniques

This paper uses monthly data from eleven local governments to model residential water demand in Queensland, Australia from 1994 to 2004. In the sample, residential consumption is charged using a variety of structures including fixed charges without allowance, fixed charges with allowance and excess rates, two-part tariffs comprising an access charge and a flat consumption rate and multi-part tariffs with an access charge and two or more limits with increasing consumption rates. Water demand is specified as average monthly household water consumption and the demand characteristics include the marginal and average price of water and daily average maximum temperatures and rainfall. The findings confirm residential water as price inelastic, more responsive to average than marginal prices, and more responsive to changes in temperature than rainfall. The results also suggest that cross-sectional variation in demand is related to local government-specific factors.