Impact of residential water demand across different states

The chief purpose of this paper is to stipulate and gauge parametric quantities on the impact of residential H2O demand across different provinces over clip. By utilizing appropriate econometric attacks ( OLS and IV appraisals ) , we find grounds that H2O demand is invariant by the province size and irrelevant with population and income. Besides the U.S. domestic family H2O demand has strong relationship with conditions determiners. The impact of family size is interpreted with endogeneity job and a good instrument variable is drawn by taking the IV appraisal. The consequences for most H2O demand determiners are important and shut the old residential H2O demand surveies.

Introduction and Motivation

It is widely recognized that H2O resources are non-renewable nature beginnings and have shrunk dramatically in the recent decennaries. As a requirement for any H2O resource ordinance, the appraisal of family demand for residential H2O is of import in both societal and demographical research. For every policy shaper, their outlooks of the form in domestic H2O demand should be modest and progressive by sing the features in their state. Different parts have different imposts in their day-to-day lives, which causes the sum of H2O ingestion can change significantly. Although H2O usage in industrial and agricultural intents is likely to be weighted as the chief ingestion component in H2O resources, residential H2O usage still necessitate to be draw attending since the population addition steadily and H2O demand for families is besides increasing in a high rate, besides activity variegations may necessitate more H2O usage in households and communities. Therefore, a conservative recommendation of rational and efficient H2O usage is promoted by most states in the universe, particularly for the western states.

Many early surveies related to residential H2O demand are investigated in the United States. Some of their estimated consequences are debatable such as monetary value and income snap. Nauges and Thomas ( 1997 ) described in their research that some of import consequences in empricial literatures are really heterogenous and the jobs still exist without appropriate readings. They summarized there are chief three jobs ; foremost is the wrong information on monetary values, which is non ever available for research workers. For illustration, U.S. has different pricing strategies on H2O monetary value for residential usage. Harmonizing to the U.S. Environmental Protection Agency ( EPA ) , there are four conservative duties and two flexible duties[ 1 ]. If research workers can non obtain the existent monetary value matching to the class of duty type, the appraisal may bias in some instances. The 2nd job they mentioned is the societal and demographic variables should be included in the theoretical accounts and the last is the importance of proving endogeneity of monetary value in ingestion equation ( Nauges and Thomas, 1997, p68 ) . In order to do a consistent and efficient analysis, writer usage all the possible informations sets available from the official database to show sensible appraisals of impacts on residential H2O demand. However, the major job in seeking for the informations sets of H2O and sewerage monetary value occurred since the monetary value informations sets from American Water Work Association have to be subscribed in one-year fees. Under this circumstance, alternate H2O monetary value was collected from another H2O public-service corporation association[ 2 ]. However, the study record is merely in 2006 without any information in other calendar old ages. Even though this job may raise the estimation prejudice in monetary value variable, other variables are still deserving to be evaluated in economic point of view. The paper is organized as follows. Section 2 nowadayss an overall reappraisal of recent literatures on gauging family H2O demand. In subdivision 3, we describe the information about our survey country and limitations accompanied with a presentation of our informations sets. Section 4 is the chief organic structure of this thesis, a precise analysis of appraisal on residential H2O usage is introduced. Besides we take farther readings and statements based on the estimated consequences. Section 5 is decision.

Literature reappraisal

The intent of this paper was to stipulate and gauge parametric quantities on the impact of residential H2O demand across different provinces over clip.

Several old surveies suggest that H2O demand was based on a “ demand ” construct. Population and urbanisation are regard as the variables to find this construct, and family H2O demand simply depends on these two variables. In other words, H2O monetary value and household income do non impact their H2O ingestion, harmonizing to Headley ‘s survey in San Francisco-Oakland Metropolitan Area ( Headley, 1963, p.441 ) . Foster and Beattie ( 1979 ) suggested that the anterior surveies presented important consequences, which more or less due to relative low rising prices rate and sweetenings in economic systems of graduated table. Hence, infrastructural work of residential H2O and the monetary value of H2O were equal at that phase ( Foster and Beattie 1979, p.43 ) . These early researches on residential H2O demand provide some important decisions in their appraisals associated with residential H2O demand by using important economical variables such as household income, population and others, nevertheless, the restriction of survey country concentrating on a peculiar metropolis can merely demo partial influence within that part. Furthermore, the consequence of appraisal can change from one metropolis to another. Foster and Beattie ‘ work provides a cardinal research when taking concern of the full state, and their theoretical account estimated illustrated desirable consequences through a probe of six parts in order to acknowledge the true effects of family H2O demand by an aggregative theoretical account in the U.S. , differ from the regional effects, writer did wider researches on every province and collected comparative informations information for farther rating intents.

The premise mentioned by Headley about the changeless costs, which is non applicable since the costs of H2O have become higher twelvemonth by twelvemonth in the U.S. Therefore, it likely caused by a higher rising prices rate and comparative policies for protecting the nature resources. Recent circumstance about different monetary value duty with regard to the family H2O usage may connote once more that the monetary value of H2O can be really high in the certain residential territories, peculiarly for larger size of family members.

Some recent research workers have presented improved probes of residential H2O demand in the peculiar countries with assorted H2O pricing duty. Harmonizing to Nieswiadomy and Molina ( 1989 ) ‘s work, they compared two different H2O pricing strategies ( diminishing and increasing block rate ) to gauge the consequence on residential H2O demand in the metropolis of Denton, Texas. In their research, the observations were collected in a random sample of 101 single clients ‘ monthly H2O usage record from the metropolis, they chose in the calendar month in 1976-1980 with diminishing block rate in H2O monetary value and increasing block rate during 1981-1985. Distinguish to some past surveies ; a specific conditions variable of evapotranspiration matched to the charge rhythm of each consumer was involved in their appraisal. The evapotranspiration is likely to impact the H2O ingestion if the surface H2O volume is big in some peculiar families. The appraisal consequences showed that a negative monetary value consequence under the diminishing block rate and a positive consequence under increasing block rate, meanwhile the conditions, house size and income variables all produced expected consequences and were statistically important ( Nieswiadomy and Molina, 1989 ) . Harmonizing to EPA, H2O and effluent ordinance, in the U.S. , full cost H2O pricing strategy including all operations, care and capital costs has been introduced among most of provinces, which is regulated by EPA of the U.S. , increasing block rates, seasonal rates peak clip charge and inordinate surcharge are the chief monetary value constructions, which tends to be effectual to work out the job of H2O scarceness to some extents and do more efficient usage of H2O resources[ 3 ]. In agricultural field, Bar-shira and his cooperated research workers ( 2006 ) mentioned in their survey that increasing block duties implements the second-best societal aim of maximising public assistance topic to a coveted figure of houses in the industry. Because of the fringy cost pricing, some little farms and household concern can non last in the competitory agricultural markets in Israeli. The block monetary values undertaking allows them to put a high, socially optimum fringy monetary value and keeps the mean monetary value in a comparatively low degree. Even though this program faces some troubles, research workers demonstrated a strong analysis to gauge husbandman ‘s demand for irrigation H2O under increasing block-rate duty by utilizing a panel information with 185 Israeli agricultural communities in the period 1992-1997 ( Bar-shira et al. 2006 ) . In their estimated specifications, H2O monetary values have a important, negative consequence on H2O usage. It hence, seems to be inconsistent with the consequences we obtained in Nieswadomy and Molina ‘s survey. This may likely do by they use different econometrics attacks. In Bar-shira ‘s theoretical account, they use maximal likeliness estimation and the other two writers take the OLS appraisals. The maximal likeliness theoretical account is likely to show a more precise form because the consequence will be enlarged by the clip persists. In add-on, comparison to a individual unvarying monetary value strategy, block pricing had led to an existent decrease of Israeli aggregative demand in H2O usage, harmonizing to their findings ( Bar-shira et al. 2006 ) . Hence, in instance of the aggregative demand of H2O in the U.S. , the block rate H2O pricing has been implied among several provinces and achieved some positive effects to apportion more expeditiously in H2O resources. In the basic economic theory, if we isolate monetary value as a individual factor to the H2O demand, the effect is as the monetary value of H2O additions, demand for the H2O should travel down presuming the supply is a fixed constituent. However, H2O is a necessity and tends to be extremely inelastic compared to other trade goods such as wash machine or icebox. Many surveies associated with the H2O demand, suggested that monetary value snap estimates in the residential H2O demand is one of the chief intents in the economic analysis. Nauges and Thomas ( 2000 ) argued in their survey about Gallic H2O demand for family that it is of import to find the definition of monetary value ; thereby monetary value snap in the parametric quantity appraisal can bring forth an indifferent consequence. This status should be constructed carefully in our econometric theoretical account ( Nauges and Thomas, 2000, P 72 ) . Some other research workers even found the consequences of monetary value snap appraisals are hard to construe through empirical observation, which can be involved a batch inexplicit factors such as authorities ordinances and local nature resource policies, even in some peculiar rural countries, the H2O local people consumed simply come from the rivers or lakes. These factors may take our appraisals to be really equivocal. In order to extinguish these uncertainnesss, Dandy and his co-workers ( 1997 ) stated in their paper by sing the residential H2O demand with free allowances. The probe country was in Adelaide, South Australia, they explored the impact of a rate construction under the status of free allowance on residential H2O ingestion. The high spot in their research was that the monetary value sensitiveness exceeded the boundary of the free allowance is higher, and lower influence in footings of societal and climatic factor than the ingestion within the allowance. In their appraisal procedure, they separated the effects via proving different econometric theoretical accounts. Their overall consequences showed the ingestion above the allowance is more sensitive to income, clime variables and pool ownership than ingestion below the allowance. However, they emphasized that the family size and a few other variables do non impact the H2O demand whether it is above or below the allowance boundary ( Dandy et al. , 1997 ) . Foster and Beattie ‘s paper employed a specification of two theoretical accounts to measure the urban H2O demand in the full U.S. they used the aggregative U.S theoretical account through a neoclassical theory of consumer behaviour with four determiners and the disaggregated theoretical account by adding dummy variables to integrate the sum theoretical account[ 4 ]. They focused their regional categorizations for the hypothesis trial on six different parts throughout the whole U.S. The cardinal contention in the Foster ‘s survey is through taking rational variables and theoretical account specification ; test the hypothesis that urban residential demand of H2O is invariant among parts of the U.S. and invariant to metropolis size. The important result turned out that the rejection of the hypothesis, which may ensue from the influence of different policy given in different parts of the state. Meanwhile, the monetary value coefficients besides varied from parts to parts, which indicate the regional H2O pricing schemes someway affects the local residential H2O monetary value. Hence, he claimed that it is of import to extinguish the favoritism effects in footings of statistical illations for a certain country of the state ( Foster and Beattie 1979, p.43 ) .

The purpose of this paper is based on our informations beginnings, to sort and gauge chief parametric quantities on the aggregative impact of American residential H2O demand by utilizing logarithm signifier theoretical accounts ( both semi-log and log-log specifications are applied ) .


The survey country and limitations:

The survey country is across 51 provinces in the United States during 2005-2008. Domestic H2O ingestion in intent of family day-to-day usage such as bath, lavatory, wash and drink is merely recorded from 1990 to 2005 in five old ages interval[ 5 ], therefore, for staying three from 2006 to 2008, we assume the ingestion varies as a map of social-demographical features. The H2O and effluent measures for family informations is available in 2006, in order to capture the consequence on H2O ingestion in the twelvemonth of 2005, 2007 and 2008 ; we use the Consumer monetary value index for the H2O and sewerage in 2006 as a baseline to cipher the H2O and sewerage measures for family in the staying old ages. For the other resources, average age per province, population, average family mean income, mean monthly precipitation, mean family size and mean temperature, all these variables ‘ informations are collected in one-year footing during 2005-2008. The entire lodging units informations is merely recorded in 2008, hence, writer respects this variable is fixed in our sample clip periods for simpleness. It seems to be highly hard to roll up all the informations sets in sphere of our rational outlook with both cross provinces and clip dimensions. The chief job of informations choice in this paper is the restricted beginnings we can entree, since through manner of cyberspace, the informations resources are really limited on the national functionary web sites.

The information for this paper was chiefly collected from these beginnings: mean age, population, mean family size, lodging units and income, these informations sets were ab initio obtained from the U.S. Census Bureau. The information of precipitation and temperature came from the National Climatic Data Centre, the U.S. section of commercialism. The H2O ingestion and province size are referred from USGS ( U.S. Geographical Survey ) , while the family one-year H2O and effluent measures informations is obtained from national rural H2O association. This paper investigated the effects of residential H2O demand across all provinces in the full U.S. in a extremely aggregative method. In the economic position, hoglund ( 1999 ) stated that the family H2O demand is a composite demand dwelling of the direct demand for imbibing intents and indirect demand for H2O as a complement to different family activities such as cookery, cleansing, lavation, personal hygiene and horticulture ( hoglund, 1999 ) .

Data Description:

We use a panel information sample of 51 provinces in the full U.S. on the period 2005-2008.

Dependent variable:

Water ingestion per twenty-four hours in million gallons[ 6 ]

The dependant variable was measured H2O ingestion daily in different provinces, the informations sets ab initio collected from United States Geographical Survey in 2005. As the information was merely surveyed in five old ages interval, writer can non get the exact informations during 2005-2008. To turn to this job, the best option is by puting the ingestion as a fixed variable over clip, even though this premise is non realistic. In our theoretical accounts, the entire lodging units are besides supposed to be changeless, if this status is satisfied, the ingestion per lodging unit may besides speculate as a fixed value, hence, the entire ingestion so is possible to be indistinguishable over clip.

Explanatory variable

Household H2O and effluent measures[ 7 ]

The explanatory variable of H2O and effluent measures was measured by national rural H2O association. Initially, writer attempted to take a more appropriate informations sets as the dependant variable, which were constructed by AWWA ( American Water Works Association ) , however, all the information in this organisation was marked a really high monetary value to be purchased. Unfortunately, the NRWA presented a white paper associated with family H2O and effluent measures and household income in 2006. Based on the available informations from the white paper study, writer set up a measure equation employed by the 2006 informations and the CPI ( consumer monetary value index ) in the period 2005-2008. The CPI reflects the monetary value alteration in most trade goods in our day-to-day life. Since the H2O and sewerage monetary value index is besides included, we can therefore set up the supposable additive relationship between CPI and the H2O and sewerage measures. Given the baseline as 100=1984 ( annotate BLS ) , the H2O and sewerage index for 2006 is 139, 2005 is 132.5, 2007 is 146.37 and 2008 is 156.18. By taking the 2006 index as baseline, writer uses the other three old ages index to split the 139 severally. The undermentioned process is by taken the ratio obtained ; multiply with the H2O and effluent measures in 2006, finally, the measure informations sets in the twelvemonth of 2005-2008 are constructed.

US 51 provinces population during 2005-2008[ 8 ]

Household H2O demand straight connects to the figure of people populating in the communities. On the footing of province, population straight affects the volume of H2O usage in occupants section. Although some early surveies stated that the H2O demand for family is a “ demand ” construct which is irrelevant with population and other factors ( Headley, 1963 ) , Foster and Beattie ( 1979 ) estimated the effects of population effects on American urban residential H2O demand, found out that the population had some correlativity with H2O demand, and it is statistically important ( Foster and Beattie, 1979 ) . In general, there is an expressed relationship between the residential H2O ingestion and the province population. Apparently, a larger population tends to ensue a higher ingestion degree of H2O as people have to devour H2O in their day-to-day life and it is universally recognized.

Household size in each province during 2005-2008[ 9 ]

The variable of family size has a similar impact compared to the population variable. However, family size is much more strictly measured in family footing. The information sets are all collected from U.S. Census Bureau.

US 51 provinces average household income 2005-2008[ 10 ]

Some old surveies suggested that the H2O ingestion is invariant with regard to household income ( Headley, 1963 ) . Foster and Beattie ( 1979 ) tested the aggregative theoretical account in his work and the result indicated that the income did impact the H2O usage in family ( Foster and Beattie, 1979 ) and it had become much more important. Since the nature H2O resources has declined bit by bit and should be taken serious concern to use and devour them in a more efficient and ecological manner, different income degree households should recognize the importance under recent to a great extent polluted environmental fortunes.

Average monthly precipitations during 2005-2008[ 11 ]

Precipitation, the measuring of rainfall, is besides variable to act upon the family H2O usage. The countries with high volume of rainfall tend to take lower H2O ingestion while the parts with low rainfall rate, or the topographic points experienced drouth are more likely to devour more H2O. The precipitations were surveyed monthly during 2005-2008. The information sets in 2005 and 2007 are six months mean whereas the remainder are 12 months mean rainfall rate.

Average temperature in Fahrenheit[ 12 ]

Temperature is another factor, which should be taken concern on the impact of residential H2O demand. Nieswiadomy and Molina ( 1989 ) adopted a variable of evapotranspiration included in their theoretical account, which implies that the component of conditions variables should be involved in the analysis of residential H2O demand.

Average age in each province during 2005-2008[ 13 ]

Age variable tends to be irrelevant if we simply consider it as a figure to stand for different groups of persons. However, the research from Westrell and Andersson ( 2006 ) indicated that senior and immature persons and patients are likely to hold a larger H2O consumption compared to other groups. Consequently, this variable is besides needfully included in our undermentioned appraisals.

Entire lodging units in the U.S.[ 14 ]

The variable of lodging units is another explanatory variable in this survey. The information sets include the entire units across all provinces in the U.S. Merely a few empirical plants adopted this variable to measure its effects on H2O demand, in this instance, the lodging units variable is presumed as a fixed component over the sample periods as we mentioned at the beginning of the this subdivision.

US province size measured in 2002[ 15 ]

State size is the variable emphasized in this paper. Both Fourt ( 1958 ) and Foster and Beattie ( 1979 ) stated in their research about whether the size of metropolis was invariant to the H2O demand. Foster and Beattie ‘s trial consequences rejected their hypothesis and showed there was a relationship between the metropolis size and the demand of H2O ( Foster and Beattie, 1979 ) . Hereby, in this paper, this variable will besides be tested in the theoretical account to see whether it is relevant to the residential H2O demand.

Dummy variables:

In Foster and Beattie ‘s work, they took population to sort the groups in 4 different types, which were no more than 20,000 ; between 20,000 and 50,000 ; between 50,000 and 150,000 and larger than 150,000 ( Foster and Beattie, 1979 ) . This division was appropriate in their survey since they distinguished the full American land into six parts. In this paper, as we consider merely in state-base graduated table, this categorization seems to be non applicable. Alternatively, based on our statistical sample, the groups are divided into so:





Note: Numberss represent in 1000 in existent informations sets.

These four groups were named as little for group 1, median for group 2, carnival for group 3 and big for group 4. There dummy variables were associated with all Federal provinces.

Vi=1 if the observation is from ith class ( size of metropolis ) , 0 otherwise ;

I =1, 2, 3, 4 for size of metropolis

For another silent person variable of family graduated table, we presume the criterion family graduated table is 2.5 in norm. Denote there are two groups as:

1, family size & gt ; =2.5

2, family size & lt ; 2.5

( Note: the family in scale no less than 2.5 =1 and 0, otherwise. )

Economic theory and econometric theoretical account

The theoretical account presented in this paper is relied on the neoclassical theory of consumer demand to sort the variables obtained and demonstrate via econometric attack. Subsequently, with a theoretical account specification to prove the hypothesis of the residential H2O demand is invariant in different sizes of provinces in the U.S. and irrelevant to the population and income.

Harmonizing to the economic theory, the monetary value of a consumer monetary value is most of import determiner to impact the measure demand. However, many anterior surveies proved that the monetary value snap of H2O demand is inelastic. Schleich and Hillenbrand ( 2008 ) indicated in their work that the OLS estimations for the monetary value snap of H2O demand in Germany is -0.230 and -0.252 in log-log theoretical accounts and semi-log theoretical accounts severally. They besides confirmed this consequence were consistent with the consequences on other studies in Germany ( Schleich and Hillenbrand, 2008 ) . As writer stated in the beginning of this paper, H2O is a extremely inelastic good compared to other trade goods. In the other words, it is non easy to be substituted in the short tally. Even in the long tally, people can non populate without H2O as a necessity to devour and it is barely to be switched to another good as replacement.

Aggregate theoretical account:

The theoretical account conducted by 51 observations with 10 variables in period of 2005-2008. The basic model was referred to Foster-type theoretical account. However, the failing of Foster theoretical account is their OLS arrested development strictly based on their cross sectional informations, which is non applicable for the panel informations in this paper. Furthermore, the OLS appraisal is supposed to be bias since the H2O and effluent measures variables are correlated with the mistake term, therefore the estimated parametric quantities are besides non consistent. Alternatively, a better improved theoretical account for gauging the H2O demand was introduced in Nauges and Thomas ( 2000 ) ‘s survey. In their theoretical account, basic H2O duty negotiated for residential users is set as a portion of their appraisal. Distinguish to their definitions for the H2O duty ; monetary value is included in our theoretical account, alternatively, the variable of measures of H2O and sewerage for family represents the duty of residential H2O usage. Because the informations sets were recorded merely in 2006, for the staying old ages, we define:

( t=05, 07, 08 ; 0=06 ) ( 1 )

This definition is seemingly keeping the H2O duty for occupants is simply affected by the Consumer monetary value index and the error term.

The ingestion map we constructed is a map including all the factors we considered on the residential H2O ingestion:

C=f ( B, Y, R, N, HS, H, SS, T, A )


C=water ingestion per twenty-four hours in million gallon

B=household H2O and effluent measures ( dollars )

N=US 51 provinces population during 2005-2008 ( in 1000s )

HS=household size in each province during 2005-2008

Y= US 51 provinces average household income 2005-2008 ( dollars )

R= mean monthly precipitations during 2005-2008 ( in inches )

T=average temperature in Fahrenheit

A=average age in each province during 2005-2008

H=total lodging units in the U.S.

SS=US province size measured in 2002 ( in square stat mis )

In each period T, existent H2O ingestion Ct varies from the expected ingestion government. As we mention in informations subdivision, the ingestion volume is changeless in our outlooks. But in existent computation, the differences can be caused by legion factors such as climatic conditions, income fluctuation. To do the theoretical account more precise in depicting the existent family H2O demand, we adopt a similar equation with Nauges and Thomas ‘s theoretical account, consequently. Let Z denote the state-related features included province size, income, population, family size, age, and lodging units. Let Xt denote these weather variables of precipitations and temperature. So the existent ingestion at clip T is:

( 2 )

The unexplained government on H2O ingestion matching to the H2O and effluent measures is denoted as I±.Therefore, the concluding theoretical account specifications are:

( 3 )

Harmonizing to the study of U.S. Environmental Protection Agency, the mean outgo of H2O and effluent for American family is merely $ 523 per twelvemonth while about $ 700 disbursement on carbonated soft drink. Therefore, the H2O monetary values are really near to the costs. This monetary value degree on H2O and effluent is about the lowest compared to other developed states in the universe. However, the substructure of H2O system in the U.S. is aging and confronting legion jobs such as pipes are nearing their life anticipation, population is increasing with larger demand for H2O usage. To turn to these issues, the Office of Water anticipates a sustainable substructure supported by four pillars of actions. These four pillars include: heightening public-service corporation direction, salvaging H2O through efficiency steps, concerted ventures via the watershed attack, and full cost pricing[ 16 ].

If the cost-pricing mechanism is applied in the US H2O sector, which means a rise in H2O demand leads to a lower monetary values since a higher degree of ingestion enable the costs to be allocated into a larger range. Therefore, in this instance, the endogeneity job is raised as one of the explanatory variables ( i.e. the H2O and effluent measures ) in equation ( 1 ) is correlated with the error term. The arrested development coefficients in gauging equation ( 1 ) therefore can be biased. In add-on, some variables omitted from the equation ( 1 ) could besides be omitted from equation ( 3 ) . Consequently, I± and I? would be correlated.

Therefore, it is indispensable to maintain in head the H2O duty ( monetary value puting ) is non exogenously given to the province, in other words, no dialogue power of H2O monetary value for persons is allowed and certain policy that may impact the H2O monetary value puting for domestic consumers should besides be prohibited. When concentrating on the appraisal of residential H2O demand, some variables could at the same time come in the H2O measures equation and the ingestion map. This may besides take to colored estimations for the parametric quantities. Hence, this job should be taken into history every bit good.

Analysis, presentation, reading of consequences

Our basic analysis is concentrated on additive relationships between variables, and OLS appraisals will be applied to show the impacts of explanatory variables on residential H2O demand.

Summary for the statistic variables

Table 1 Statistic sum-up for variables in the sample


Ob river


Std. Dev.



































































































Table 1 illustrates the chief form of all the variables involved in our statistic analysis. Overall, there are 1 dependent variable and 9 explanatory variables with 5 dummy variables. It should be noticed that there are 8 observations in the variable of precipitations and temperature are losing. The ground for that is there were no records of mean monthly precipitations in the provinces of Alaska and Hawaii in the national climatic informations Centre during 2005-2008.

The following subdivision we concentrate on measuring the information sets through econometric methods.

There are several inquiries we focus on:

1, test the OLS, describe the overall consequence for the theoretical account.

2, what is the consequence of province size on alterations in the residential H2O demand? If so, how is the consequence can be interpreted? If non, how to explicate?

3, what is the consequence of income and population on alteration in H2O demand? If so, how to construe it? If non, how to explicate?

4, what is the correlativity between silent person variable size of province and the H2O ingestion?

5, trial whether there is endogeneity job on the family size, if exist, happen a good instrument and trial utilizing IV appraisal.

6, compare the empirical consequences of conditions variable with anterior surveies, it should be noted that in our survey, climatic factors can be represented by the mean temperature and mean monthly precipitations.

First of wholly, we compute the log value of H2O ingestion and run OLS arrested development to find the parametric quantity coefficients for the theoretical account incorporating all the explanatory variables expect conditions and dummy variables.

Table 2: Appraisal consequences for H2O demand for the semi-log theoretical account





( 0.0001386 )



( 0.0000636 )



( 2.17E-07 )



( 0.1667385 )



( 2.56E-06 )



( 0.0113041 )



( 0.0000256 )



( 0.7030094 )



F-statistic ( 7,196 )


Note: t-test significance at the 5 % and 1 % degrees denoted by * and ** , severally

Table 2 shows the overall impact of social-demographical variables on the U.S. H2O demand. The OLS coefficients suggest the H2O and effluent measures, family size, age are all important in 1 % significance degree and income every bit good is important in 5 % significance degree. The variable of province size, population and lodging units are likely to be undistinguished. It is inconsistent to the estimation consequences from Foster and Beattie ( 1979 ) since their estimated coefficients indicated H2O demand is different by parts. We besides estimate the theoretical account as a whole to happen out whether the theoretical account is a good tantrum. The value of F-test is 21.81, which is greater than the critical value ( 2.01 ) . As a effect, we can reject the void hypothesis that the theoretical account has no explanatory power as a whole. It should besides be noticed that the OLS coefficients on H2O and effluent measure is positive, which seems to be invalid compared to most old H2O demand surveies[ 17 ]. The ground for that is the informations sets we obtained are merely show one twelvemonth H2O and sewerage rate, for the other old ages, the informations sets were calculated in a certain map, which may do some grade of measurement mistakes. Therefore, the overall OLS appraisal of this variable is biased.

The following measure is to prove the theoretical account as a whole by utilizing all explanatory variables expect dummy variables. Table 3 summarizes the statistic results for the OLS arrested development ( include the climatic variables ) .

Table 3 Appraisal consequences for H2O demand in semi-log theoretical account





( 0.0001318 )



( 0.0026364 )



( 0.0212268 )



( 0.0000574 )



( 5.72E-07 )



( 0.1629974 )



( 2.67E-06 )



( 0.0111834 )



( 0.0000232 )




( 0.7082407 )


F-statistic ( 9,186 )


Note: t-test significance at the 5 % and 1 % degrees denoted by * and ** , severally

Table 3 demonstrates the OLS arrested development consequences for the theoretical account as a whole including all explanatory variables expect silent persons. Both temperature and precipitation show strong impacts on H2O ingestion and the OLS coefficients are statistically important. Surprisingly, the coefficient on H2O measures and family size variables present statistically undistinguished and for the variables of lodging units, income and population, the form are similar to postpone 2. As a decision, the appraisal prejudice occurs due to the losing observations in conditions variables and besides the influence by multicollinearity or simultaneousness. In other words, there are possible additive relationships between some of the explanatory variables or some variables at the same time involved in H2O duty equation and ingestion map. However, the F-test value suggests that the theoretical account as a whole still has explanatory power since the value ( 28.18 ) is greater than the corresponding critical value of F ( 9,186 ) =1.88.

For the 2nd inquiry, the OLS appraisals of log-water ingestion on province size suggest that



Std. Err.










An excess square stat mi of province size is associated with an addition in H2O ingestion, ( this is a semi-log arrested development so the coefficients are interpreted as semi-elasticities, so dLwcon/dstatesize = = % alteration in pay /100 with regard to a unit alteration in province size ) . Hence, the consequence of alterations in size of province on demand of domestic H2O usage can be eliminated.

Similarly, one time once more, the consequences of OLS appraisal of log-water ingestion on income and population nowadays in the undermentioned tabular array:



Std. Err.














The coefficient results of mean household income and population by province can be interpreted that:

A unit addition in household income ( a dollar ) is likely to a rise H2O ingestion by while a unit addition in population tends to take a bead in H2O ingestion by. Both consequences suggest that residential H2O demand is invariant in footings of family income and population. If we take a log-log signifier arrested development of H2O ingestion on family income, the form is displayed as:



Std. Err.










Therefore, the coefficient here is described as the income snap of H2O demand is 0.0399, which represents a 1 % addition in income will take to a 0.0399 % addition in H2O ingestion. Based on the informations by Foster and Beattie ( 1979 ) , Nieswiadomy and Molina ( 1989 ) , Nauges and Thomas ( 2000 ) and Arbues and Barberan ( 2004 ) were compared with the theoretical account we established here.



Study country


Foster and Beattie




Nieswiadomy and Molina


U.S. Texas


Nauges and Thomas




Arbues and Barberan



Note: foremost 3 coefficients were calculated in log-log signifier theoretical account and the last 1 was in semi-log signifier.

Because our survey country is located in the full U.S. , the coefficients of income snap with the survey country in the U.S. are likely to be more plausible. And our estimation of 0.0399 is really near to 0.014 estimated by Nieswiadomy and Molina.

Many early literatures excluded the population variable ; instead, family size or the variable of mean occupants per metre is used to prove the consequence on H2O demand. The lone gettable figure by gauging population variable in the theoretical account of H2O demand is from Schleich and Hillenbrand ( 2007 ) . To fit the coefficients in snap signifier, we every bit good test the double-log signifier OLS arrested development of H2O demand on population, and the consequence is -0.04. It is really close to -0.01 ( Schleich and Hillenbrand, 2007 ) .



Std. Err.










For the 4th inquiry, the correlativity coefficients between H2O ingestion and size of province are:












For little and average provinces with a population denseness from 0 to 5000 in sample size, there is a positive relationship between H2O ingestion and size of province. If the province size larger than 5000 ( sample size ) in population denseness, the correlativity between demand and province size so becomes negative. An reading for this is when population is big ; residential H2O demand per capita tends to be really low and in some peculiar provinces, H2O usage for industrial or agricultural intents is far more than residential H2O usage. Therefore, the existent H2O ingestion of family units in these countries is even lower than other little provinces.

The stepdown process is to analyse whether there is an endogeneity job involved in the family size variable. See the possible endogeneity job of family size variable, which may correlate with losing variable like impermanent occupants or refugees and therefore correlated with the error term. Assume good instruments can be found, under certain circumstance, IV appraisal may go better to execute the theoretical account statistically.

First, take an OLS appraisal family size on log-water ingestion. The consequences are:



Std. Err.







F ( 1,202 ) =52.90

Assume endogeneity job is existed in the family size variable ; we introduce the silent person family graduated table as an instrument, which produces as:

First phase



Std. Err.


graduated table








F ( 1,202 ) =178.35

The correlativity of instrument and endogenous variable as revealed by the 1st phase of the 2sls arrested development is rather strong. The T value & gt ; 13 and the F value=178 which is evidently far higher than the regulation of pollex value of 10.

The 2nd phase: Instrumental variables ( 2SLS ) arrested development




Std. Err.










Instrumented: householdsize

Instruments: graduated table

F ( 1,202 ) =28.62

As a consequence, the 2nd phase of the IV is much closer to the original OLS estimation. The IV criterion mistake on family size is still slightly larger than in OLS, If we take the point IV estimation as true, this suggests that the omitted variable doing endogeneity, ( say impermanent occupants or refugees ) , is negatively correlated with family size. Neting out this consequence should raise the ( true ) coefficient on family size.

A comparing of conditions variables with empirical consequences



Study country


Nieswiadomy and Molina



13.9 ( conditions )

Dandy et Al.




Nauges and Thomas



0.024 ( rain )

Bar-shira et Al.



-0.24 ( rain )

Schleich and Hillenbrand



-0.147 ( rain )

-0.047 ( temp )

The general residential H2O demand theoretical account has been formulated and evaluated in the old chapters. If the contention that the theoretical account presented in this paper is applicable and right, the snap appraisals of climatic variables would suitably depict the interrelatedness among H2O ingestion and conditions factors compared to empirical surveies.

Most surveies adopted log-log specification for proving the conditions snap while other merely take the additive trial. To do the comparing near to most coefficients on conditions variables, writer besides generates the log-value of precipitation and temperature. And the consequences are -0.434 and 0.634 for the precipitation and temperature. The parametric quantity coefficient estimated by Nieswiadomy and Molina was 13.9, which is an overall conditions variable included all possible factors that may impact the H2O demand ; accordingly, this coefficient is non precise plenty to be contrasted. Dandy and cooperated writers analyzed the H2O ingestion via Ramsey ‘s RESET theoretical account and the coefficient either is non available when we target to fit the same format utilizing econometric attack. The staying writers all took log-log theoretical account in their appraisal theoretical accounts. Obviously harmonizing to the trial coefficients, the consequences were recorded as 0.024 by Nauges and Thomas, -0.24 by Bar-shira et Al. and -0.147 & A ; -0.047 by Schleich and Hillenbrand severally. It should be emphasized that the rainfall is a preferred variables implemented by all three groups of research workers and the temperature is merely used by Schleich and Hillenbrand in their German residential H2O demand appraisals. Our parametric quantity coefficients therefore are really near to the overall result drawn by these empirical consequences.

In the last portion of this subdivision, we will gauge whether the variables of family size, income and age have effects on H2O ingestion by proving within group and random effects of on this panel informations.

It should be noticed that the variable ( household size ) is presumed to be changeless over clip, when we include this variable in the random effects appraisal, in fixed effects the impact of changeless variable can non be separated from that of the unseen fixed effects. The consequences show that coefficients on family size, income and age are higher when sing for unobserveables, which suggests OLS estimations were biased by omitted variable prejudice and hence that correlativity between unobserveables and H2O ingestion is positive.

To sum up this subdivision, all the consequences turned out in our appraisal suggest that the theoretical account established performs a plausible form to some extent that presume our informations sets are recorded accurately. Estimated coefficients on some of variables were statistically important although in our established theoretical account, omitted variables occurred in our OLS appraisal. Because it is hard to suit the theoretical account in highly perfect signifier since some unseen variables will be in most econometric theoretical accounts. Furthermore, compared to early surveies related to residential H2O demand, the consequences were chiefly consistent even if some researches were focused on different parts in the universe. A limitation of proving the monetary value snap is caused by limited existent informations sets on pricing puting in the full U.S. It should be tackled for farther research associated with family H2O demand.

Decision, drumhead, policy deductions

Household demand for H2O may be influenced by the factors in footings of H2O and effluent monetary value, age, precipitation, temperature and family size, whereas the estimated consequences indicates geographical differences on the province size have no effects on family H2O ingestion form. A proper account of this effect may profit from public consciousness and acceptation for puting conservative H2O and sewerage monetary value for most provinces throughout the states. Nauges and Thomas referred to the paperss of H2O international, and found that about half of H2O public-service corporation in the U.S. were public and about 28 % were in private owned in 1992. These private H2O public-service corporation companies are regulated by province committees, boards and local authoritiess. Therefore, the base rates of overall H2O supply side are well modest. When utilizing aggregate informations on state-based panel, it is possible to do endogeneity in some of our determiners if community effects are taken into history. In the instance of United States, as most H2O public-service corporation associations are public-owned or regulated, local communities may hold less negotiation power in puting the existent H2O monetary value unless the countries are non governed by local governments, therefore the community effects are comparatively low in our survey country.

This paper establishes a theoretical account of H2O ingestion irrespective to the construction of H2O and effluent pricing. We concentrate peculiarly the impacts of societal, geographical and demographical determiners on domestic residential H2O demand. Estimation consequences indicate that size of province, household income and population tend to hold really weak influence on family H2O ingestion, which may due to changeless province size and invariant aggregative demand form. Significant climatic effects are besides found, which is consistent to the empirical consequences in old literatures. Furthermore, mean age and members per family are statistically important in our analysis. In concern of environmental protection, policy deductions associated with cut downing H2O ingestion per capita should be induced and encouraged in public. As a necessity in our lives, H2O resources are confronting unsafe state of affairs since scarceness and H2O pollution are widely recognized over the universe. Although in the economic position, residential H2O ingestion is ill sensitive to alterations in monetary value, the chief expectancy of this article is to pull more attending in analyzing the importance of how to protect our nature resources and consume in an efficient and appreciate manner. This is non merely concern about the H2O “ demands ” for current coevals, besides for the hereafter of the state.