The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan

This paper seeks to question the effectiveness of water pricing as a means of consumer behavioural change in urban centres of the Global South by analysing the domestic usage for water in a major industrial city of Pakistan. Using survey data of 1100 households from Faisalabad city, we estimate the...

Full description

Bibliographic Details
Main Authors: Shabbir Ahmad, Saleem H. Ali, M. Usman Mirza, Hina Lotia
Format: Article
Language:English
Published: MDPI AG 2017-07-01
Series:Water
Subjects:
Online Access:https://www.mdpi.com/2073-4441/9/7/533
id doaj-2b59d8a399d24696bbb37585e4260f7b
record_format Article
spelling doaj-2b59d8a399d24696bbb37585e4260f7b2020-11-25T00:38:14ZengMDPI AGWater2073-44412017-07-019753310.3390/w9070533w9070533The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of PakistanShabbir Ahmad0Saleem H. Ali1M. Usman Mirza2Hina Lotia3School of Business, University of Queensland, Brisbane, Queensland 4072, AustraliaSchool of Business, University of Queensland, Brisbane, Queensland 4072, AustraliaFaculty of Environmental Sciences, Wageningen University, Wageningen 6700–6709, The NetherlandsLeadership for Environment & Development (LEAD), Islamabad 44000, PakistanThis paper seeks to question the effectiveness of water pricing as a means of consumer behavioural change in urban centres of the Global South by analysing the domestic usage for water in a major industrial city of Pakistan. Using survey data of 1100 households from Faisalabad city, we estimate the price and income elasticities of water demand. Instrumental variable methods are applied to overcome the endogeneity issues of water pricing. The findings reflect that price and income elasticities vary across different groups. Price elasticities range from −0.43 to −0.71, and income elasticities vary between 0.01 and 0.12. These findings suggest that pricing policies may have limited scope to drive households’ water consumption patterns. However, these empirics may suggest that policy makers should design an appropriate tariff structure to increase revenues that can be invested to further improve the existing water infrastructure. The study findings also suggest that non-pricing instruments, such as water saving campaigns, may be helpful in driving an efficient use of water in rapidly growing cities in the developing world.https://www.mdpi.com/2073-4441/9/7/533filtered vs. unfiltered waterhousehold surveydemand elasticityinstrumental variable approachbootstrapping methodsPakistansustainable development goals
collection DOAJ
language English
format Article
sources DOAJ
author Shabbir Ahmad
Saleem H. Ali
M. Usman Mirza
Hina Lotia
spellingShingle Shabbir Ahmad
Saleem H. Ali
M. Usman Mirza
Hina Lotia
The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
Water
filtered vs. unfiltered water
household survey
demand elasticity
instrumental variable approach
bootstrapping methods
Pakistan
sustainable development goals
author_facet Shabbir Ahmad
Saleem H. Ali
M. Usman Mirza
Hina Lotia
author_sort Shabbir Ahmad
title The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
title_short The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
title_full The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
title_fullStr The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
title_full_unstemmed The Limits of Water Pricing in a Developing Country Metropolis: Empirical Lessons from an Industrial City of Pakistan
title_sort limits of water pricing in a developing country metropolis: empirical lessons from an industrial city of pakistan
publisher MDPI AG
series Water
issn 2073-4441
publishDate 2017-07-01
description This paper seeks to question the effectiveness of water pricing as a means of consumer behavioural change in urban centres of the Global South by analysing the domestic usage for water in a major industrial city of Pakistan. Using survey data of 1100 households from Faisalabad city, we estimate the price and income elasticities of water demand. Instrumental variable methods are applied to overcome the endogeneity issues of water pricing. The findings reflect that price and income elasticities vary across different groups. Price elasticities range from −0.43 to −0.71, and income elasticities vary between 0.01 and 0.12. These findings suggest that pricing policies may have limited scope to drive households’ water consumption patterns. However, these empirics may suggest that policy makers should design an appropriate tariff structure to increase revenues that can be invested to further improve the existing water infrastructure. The study findings also suggest that non-pricing instruments, such as water saving campaigns, may be helpful in driving an efficient use of water in rapidly growing cities in the developing world.
topic filtered vs. unfiltered water
household survey
demand elasticity
instrumental variable approach
bootstrapping methods
Pakistan
sustainable development goals
url https://www.mdpi.com/2073-4441/9/7/533
work_keys_str_mv AT shabbirahmad thelimitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT saleemhali thelimitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT musmanmirza thelimitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT hinalotia thelimitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT shabbirahmad limitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT saleemhali limitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT musmanmirza limitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
AT hinalotia limitsofwaterpricinginadevelopingcountrymetropolisempiricallessonsfromanindustrialcityofpakistan
_version_ 1725298300211429376