Seminari Students

Alejandra Chovar

Universidad de Alicante


Seminar 3 – 14:30


Do consumers respond to tariff structure designed to reduce consumption of drinking water? Every year the Chilean authority implements in summer months a two blocks tariff system with the objective of avoiding an excessive increase of drinking water in the months of higher temperatures, the second block of the tariff is called “over consumption charge” and is publicly announced. In this paper, we estimate the residential water demand and its price elasticity in the province of Concepcion-Chile to evaluate how consumers respond to this annual policy. To eschew the simultaneity problem, we use the structural discrete continuous choice model. We construct an exclusive panel database from 2007 to 2010 that contains monthly water bill for each household of the province and climate information. The estimated elasticity is -0.569 for summer months, and -0.148 if the model is estimated using only non-summer months. Regarding the overconsumption policy many questions such as is the system working? Does it make sense to have a threshold very distance from the mean, around 2.5 times? We claim that the tariff structure needs a revision in terms of incentives that it wants to generate on consumers.

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