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A model for estimating the price elasticity of demand for water when increasing block rates and for availability of service charges appear in the rate schedule is described. The model requires the use of two price-related variables - the marginal price of water and the difference between the actual payment for water and what the payment would be if all units of water were sold at the marginal price. Biased estimates of the price elasticity of demand result if the difference variable is omitted. The price variables are measured for the typical consumer, using actual water consumption and the rate schedule. The use of this model should make predictions of consumer response to rate structure changes more accurate when block rates or availability of servie charges appear in the rate schedule. 16 references.
Billings et al. (1980) studied this question.