Exploring behavioral responses to a residential water tariff reform

Abstract

Water demand is often found to be relatively price-inelastic, with substantial percentages of water consumption irresponsive to price changes. This does not mean that households are insensitive to price changes or unresponsive to tariff reforms. In order to explore the latter, and using Latent Class Models, we classified households into a series of distinct types according to how they switch between consumption tiers in response to changes in their water tariff. We then identified key drivers of this switching behavior, proposing that not only tariff-related variables but also sociodemographic, attitudinal, and information conditions define switching profiles. Our empirical exercise exploits information on water consumption and tariffs from 878 households in Granada (Spain) for the years 2010 and 2011 (when a new tariff structure was implemented), as well as a survey that collected additional information about household characteristics.