Come Hell or High Water Prices: A Household-Level Analysis of Residential Water Demand in Tucson, AZ

Given the potential impacts of climate change and the recent decline in household water consumption across the Southwest, the importance of accurate water demand forecasting is evident. Using household-level panel data from Tucson, AZ, and a unique set of control variables, we estimate demand via a Stone-Geary specification. The Stone-Geary functional form advantageously allows price elasticity of demand to vary with quantity consumed and enables estimation of a threshold level of consumption below which demand is considered perfectly price inelastic. Our results indicate that not all outdoor water use is price elastic. We also assess the sensitivity of water consumption to potential climate change using downscaled projections from the Coupled Model Intercomparison Project (CMIP5). We find that, without substantial socioeconomic or technological change, climate change could result in significant increases in water consumption year-round, including an average annual increase in peak demand of up to 15% above study period levels.

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