Price elasticity of residential water demand in California

This study used meta-analysis to assess the influence of price/price structures on residential water demand in two selected urban areas in California: East Los Angeles and South San Francisco. Monthly usage data for the years 2002-2011 were utilized to determine and compare price elasticities for periods when uniform and tiered rates were charged using fixed effects panel regression and Instrumental Variable methods. Price elasticities in East Los Angeles and South San Francisco were 0.39 and 0.22 under uniform rates and 0.44 and 0.43 under tiered rates, respectively. When customers in each city were divided into three groups based upon their lot sizes, those with larger lot sizes tended to react to pricing systems more strongly than those living on smaller lots. These findings will be helpful for water demand stakeholders and policymakers seeking to design and implement more effective water pricing policies to support sustainable water conservation efforts.