Urban Water Demand for Service and Industrial Use: The Case of Zaragoza

Increased efforts to improve urban water management are focused on demand side policies, seeking to affect the behavior of users so that a “reasonable” use of water resources is reached. In this framework the accurate characterization of water demand play a major role in obtaining sufficient knowledge about this behavioral response to changes in price. In this paper we focus on the water demand of the services and industries connected to the public water network. To this end, we carry out an empirical estimation of urban water demand for service and industrial use in Zaragoza (Spain). The proposed model is a Koyck flow adjustment demand model, and a price specification, which is constructed as a function of the lagged average price, current marginal price and a price perception parameter. We use a dynamic panel data methodology to estimate the water demand function. As far as we are aware, this approach to service and industrial urban water demand is new in the literature. The analysis suggests that although price has a negative relationship with consumption, such an effect is reduced given that the price elasticity is lower than one in absolute value. Another relevant finding is that service and industrial urban users think that they pay a lower price than the actual price they pay. Copyright Springer Science+Business Media B.V. 2010