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

Piet Rietveld, Jan Rouwendal, Bert Zwart

Research output: Working paperProfessional

Abstract

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.
Original languageEnglish
Place of PublicationAmsterdam
PublisherTinbergen Instituut
Publication statusPublished - 1997

Publication series

NameDiscussion paper TI
No.97-072/3

Fingerprint

Maximum likelihood
Pricing
Indonesia
Water demand
Discretization
Budget constraint
Uniform price
Price level
Social welfare
Price elasticity
Density function
Price and income elasticities
Income elasticity
Statistical model

Cite this

Rietveld, P., Rouwendal, J., & Zwart, B. (1997). Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data. (Discussion paper TI; No. 97-072/3). Amsterdam: Tinbergen Instituut.
Rietveld, Piet ; Rouwendal, Jan ; Zwart, Bert. / Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data. Amsterdam : Tinbergen Instituut, 1997. (Discussion paper TI; 97-072/3).
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Rietveld, P, Rouwendal, J & Zwart, B 1997 'Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data' Discussion paper TI, no. 97-072/3, Tinbergen Instituut, Amsterdam.

Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data. / Rietveld, Piet; Rouwendal, Jan; Zwart, Bert.

Amsterdam : Tinbergen Instituut, 1997. (Discussion paper TI; No. 97-072/3).

Research output: Working paperProfessional

TY - UNPB

T1 - Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data

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Rietveld P, Rouwendal J, Zwart B. Estimating Water Demand in Urban Indonesia: A Maximum Likelihood Approach to block Rate Pricing Data. Amsterdam: Tinbergen Instituut. 1997. (Discussion paper TI; 97-072/3).