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Water Demand Estimation Under Block Rate Pricing: A Simultaneous Equation Approach
Author(s) -
Chicoine David L.,
Deller Steven C.,
Ramamurthy Ganapathi
Publication year - 1986
Publication title -
water resources research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.863
H-Index - 217
eISSN - 1944-7973
pISSN - 0043-1397
DOI - 10.1029/wr022i006p00859
Subject(s) - endogeneity , ordinary least squares , least squares function approximation , block (permutation group theory) , simultaneous equations model , econometrics , generalized least squares , estimation , mathematics , statistics , economics , estimator , geometry , management
A model of demand for potable water is developed and estimated simultaneously with observations on rural water district customers. The estimation technique incorporates the error structure in an attempt to provide more efficient estimates and eliminate potential ordinary least squares bias in single equation models of demand for goods sold through block rate pricing systems because of possible price endogeneity. The model also tests alternative specifications for price variables. The simultaneous equation model estimates from three‐stage‐least squares were slightly more efficient compared to two‐stage‐least squares estimates. The findings are not generally supportive of the Taylor‐Nordin specification of consumer demand for block rate priced potable water. The similarity between three‐stage‐least squares and single equation ordinary least squares estimates provides some validation for the use of simpler single equation demand models of potable water when water is sold under block rate pricing schedules.