Estimating residential water demand in the presence of free allowances

The main aim of this paper is to quantify the impact of a rate structure which includes a free allowance on residential water consumption. The analysis here differs from most previous research in that it explicitly recognizes that water consumption above the free allowance, being sensitive to price, responds less to social and climatic factors than consumption below the free allowance. While the model specification and estimation procedures used here should be of interest to those interested in the demand for water, the results (using data far Adelaide, South Australia) on the determinants of water consumption should be of interest to water authorities.