This study proposed that demand management through pricing policies can be used in conjunction with supply management to solve water supply problems in Kentucky. Economic principles were shown to apply to rural residential water use. From the economic model, a hyperbolic demand function was theorized. The mathematical form of this function used quantity of water as a function of price, income, value of residence, evaporation, and persons per residence. This function was estimated using ordinary least squares regression. A log-linear model was found to be a satisfactory representation of the demand function. Price was the only independent variable which was significant and had an elasticity of (-.92).
As an application of pricing to demand management, the estimated regression equation was used in a simulation analysis. The simulation was used to determine the reservoir capacity necessary to supply the needs of 4,000 households given three different price levels for water. Reservoir size was determined by simulating reservoir size as a function of outflow as estimated from the demand function plus an assumed low flow rate and inflow from the Thomas-Fiering Model. This technique illustrated that price does affect the quantity of water demanded which in turn effects reservoir capacity requirements.
Digital Object Identifier (DOI)
The work on which this report is based was supported in part by funds provided by the Office of Water Research and Technology, United States Department of Interior, as authorized under the Water Resources Research Act of 1964.
The work on which this report is based was supported in part by funds provided by the Office of Water Research and Technology, and in part by the Kentucky Agricultural Experiment Station.
Grunewald, Orlen C.; Haan, C. T.; Debertin, David L.; and Carey, D. I., "Rural Residential Water Demand in Kentucky: An Econometric and Simulation Analysis" (1975). KWRRI Research Reports. 111.