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Abstract
This study uses panel data at suburb level to estimates the elasticity water demands in
Perth, Australia from 1995 to 2005. After deriving the consumer’s water demand under a
non-linear budget constraint, we estimate the water demand model, which accounts for
how water (and other purchased goods) is used to satisfy fundamental desires of the
household. We have applied the specification of price that provided the correctly
estimated marginal price from the block tariff structure, and employed a maximum
likelihood estimation technique to tackle the endogeneity and heteroskedasticity issues.
Our estimation of water demand price elasticities are slightly higher (more elastic) than
previous study in Perth, but broadly in line with other estimates in the literature.