Heterogeneity in the price elasticity of demand for commercial water

2018 Spring.Includes bibliographical references.The gap between projected future water demand and supply are increasing the importance of conservation policies. Commercial users are a major source of utility withdrawals, heightening the need for increased understanding of commercial responsiveness to utility policies. Despite an abundance of empirical studies on residential water demand, there are limited commercial sector studies exploring demand elasticity heterogeneity. In this paper, we estimate commercial water demand elasticity for firms served by a local utility, employing a novel instrumental variables approach. We then present evidence that firms respond to one period lagged average price rather than marginal price. Finally, we find notable differences in elasticity among different categories of businesses and among businesses of different consumption variance levels. The findings in this paper are particularly important as utility providers across the country consider how to cope with growing demand and limited water supply