Arbeitspapier

Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data

In this paper the Burtless and Hausman model is used to estimate water demand in Salatiga, Indonesia. Other statistical models, as OLS and IV, are found to be inappropiate. A topic, which does not seem to appear in previous studies, is the fact that the density function of the loglikelihood can be made arbitrary high if observations are located exactly on a kink of the budget constraint. To avoid this problem, a discretization technique is used to work with genuine probabilities. The unconditional distribution of water demand is explored with parametric and semiparametric techniques. An important conclusion is that the distribution of water demand is not unimodal and that data are clustered aroundkinks. Main estimation results are a price elasticity of approximately -1.2 and an income elasticity of 0.05. Price and income elasticities are mutually dependent. The estimated model is finally used to investigate consequences for social welfare when a uniform price level is chosen. It is argued that without loss of total welfare, the complex rate structure can be replaced by a uniform marginal price.

Language
Englisch

Bibliographic citation
Series: Tinbergen Institute Discussion Paper ; No. 97-072/3

Classification
Wirtschaft
Subject
Nonlinear budget constraints
maximum likelihood estimation
kernel estimation
consumer surplus measure
block rate pricing
welfare effects
compensating variation
Vartia's method
Wasserversorgung
Stadtökonomik
Indonesien

Event
Geistige Schöpfung
(who)
Rietveld, Piet
Rouwendal, Jan
Zwart, Bert
Event
Veröffentlichung
(who)
Tinbergen Institute
(where)
Amsterdam and Rotterdam
(when)
1997

Handle
Last update
10.03.2025, 11:42 AM CET

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Object type

  • Arbeitspapier

Associated

  • Rietveld, Piet
  • Rouwendal, Jan
  • Zwart, Bert
  • Tinbergen Institute

Time of origin

  • 1997

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