The economics of household demand for water: The case of Kandy municipality, Sri Lanka

  • Gunatilake H
  • Gopalakrishnan C
  • Chandrasena I
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This study estimates the demand for domestic water in a
fast-growing city of a developing country. Monthly data for 40
randomly selected households for a six-year period were used for
the estimation. There were three price hikes during the study
period, which provided adequate variation in the prices for an
econometric estimation. A log-log model was selected as a proper
specification for the demand function. Marginal price, difference
price, income, and household size were used as the independent
variables. After correcting the data for auto-correlation and
heteroscedasticity, the final model was estimated. Results show
all the expected signs with statistical significance. Price
elasticity (marginal) and income elasticity for water in the
study area are estimated to be - 0.34 and 0.08, respectively.
Thus, our findings confirm the previous findings that water is
neither price- nor income-elastic. Given these responses, a price
hike may not help conserve water in the study area. However, very
low price responsiveness can be used to increase water revenues
of the municipality.

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  • H. M. Gunatilake

  • C. Gopalakrishnan

  • I. Chandrasena

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