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Abstract
There is a growing recognition in both the professional and
popular literatures that water scarcity is a key policy issue that is
especially important in arid, urban settings with the prospects for
shortfalls in water availability due to the effects of climate change.
Those evaluating these types of water problems usually conclude prices
must be reformed so that incentives facing water users change to
reflect this scarcity. Demand functions provide the basic economic
relationships required to understand how water use will respond to
such changes. This paper proposes a new method for estimating the
price elasticity of demand that meets policy needs and can accommodate
the presence of increasing block pricing structures.