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Water 2018, 10(3), 248; https://doi.org/10.3390/w10030248

Increasing Block Tariffs in an Arid Developing Country: A Discrete/Continuous Choice Model of Residential Water Demand in Jordan

1
Department of Economics, Helmholtz Centre for Environmental Research—UFZ, Permoserstr. 15, 04318 Leipzig, Germany
2
Faculty of Economics and Business Management, Institute of Infrastructure and Resources Management, Leipzig University, Grimmaische Str. 12, 04109 Leipzig, Germany
*
Author to whom correspondence should be addressed.
Received: 7 December 2017 / Revised: 13 February 2018 / Accepted: 22 February 2018 / Published: 28 February 2018
(This article belongs to the Special Issue Advances in the Economic Analysis of Residential Water Use)
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Abstract

Arid developing countries face growing challenges from water scarcity, which are exacerbated by deficient piped water supply infrastructures. Increasing block tariffs (IBTs), charging higher rates with increasing water consumption, can potentially reconcile cost recovery to finance these infrastructures with an equitable and affordable sharing of the cost burden. A firm understanding of the impacts of varying prices and socio-economic conditions on residential water demand is necessary for designing IBTs that promote these objectives. Consistently estimating water demand under an IBT requires a discrete/continuous choice (DCC) model. Despite this, few econometric studies of arid developing countries have applied this state-of-the-art approach. This paper applies a DCC model to estimate residential water demand under IBTs in the severely water-stressed country of Jordan, using 15,811 country-wide household-level observations from five years up to 2013. We extend Hewitt and Hanemann’s original DCC formulation in order to accommodate IBTs featuring a linearly progressive tariff block. We then use the resulting demand function to assess Jordan’s 2013 IBTs and alternative IBT designs. Under the estimated price elasticities, very few IBT designs achieve a full recovery of the financial costs of water provision, but we still identify a potential to improve cost recovery and affordability. View Full-Text
Keywords: residential water demand; Jordan; discrete/continuous choice model; price elasticity; increasing block tariff; linearly progressive tariff; cross-subsidization; Middle East; developing country; household-level data residential water demand; Jordan; discrete/continuous choice model; price elasticity; increasing block tariff; linearly progressive tariff; cross-subsidization; Middle East; developing country; household-level data
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).
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Klassert, C.; Sigel, K.; Klauer, B.; Gawel, E. Increasing Block Tariffs in an Arid Developing Country: A Discrete/Continuous Choice Model of Residential Water Demand in Jordan. Water 2018, 10, 248.

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