Price Elasticity of Demand
for Water Supply
Client: Utah Department of Natural Resources- Water Resource Division
Location: Washington and Kane Counties, Utah
Faced with a burgeoning population in a water resource-constrained geography, the State of Utah commissioned The Balmoral Group to estimate price elasticity of demand for water against a backdrop of $1.7 billion in proposed capital expenditures.
The project included econometric modelling across three sectors (residential, commercial and agricultural), three markets (Southwest Utah, Salt Lake City area, and the rest of Utah), and eleven different rate tier structures to estimate the price elasticity of water demand. The elasticity of impact fees as well as price and income elasticity of water demand was also explored. Extensive literature review was conducted to support use of both OLS (Ordinary Least Squares) and IV (Instrumental variable) models. To estimate the price and income elasticities for geographic and socioeconomic trounces, utility billing was collected for over 100,000 households over a three year time horizon, which resulted in a dataset that included over 2 million observations. Extensive analysis was conducted to test for structural differences between markets, assess outliers, evaluate various functional forms and modeling approaches, and to assemble the data (Kruskal-Wallis, Mann-Whitney-Wilcox, ANOVA testing and others).