Threshold Effect in Residential Water Demand: Evidence from Smooth Transition Models

  • Younes Ben Zaied
  • Nidhaleddine Ben CheikhEmail author
  • Pascal Nguyen


This paper aims to empirically examine the presence of nonlinear behavior in residential water demand for the case of Tunisia. We specifically explore the existence of nonlinearity with respect to the magnitude of water price changes through a logistic smooth transition regression (LSTR) framework and an increasing multi-step water pricing scheme. Using quarterly time series for the period 1980–2007 which describes residential water consumption and its main determinants, our results provide strong evidence that water consumption responds nonlinearly to the extent of price changes for the two consumption blocks considered. Water price elasticities are found to be higher when variation in tariffs surpasses a given threshold. More precisely, we find a unit elastic water demand for lower block consumers (low-income households) when price changes exceed a threshold of roughly 5%. For the upper block consumers (high-income households), water consumption is less elastic in comparison to low-income households, but still significant when the price variation exceeds a threshold of 2.6%. Our findings imply that increasing the length of the lower block of consumption may help achieve goals of social equity, while increasing tariff progressivity, at least for upper block consumers, helps promote water saving.


Residential water demand Threshold effect Smooth transition regression models 

JEL Classification

C22 Q21 Q25 



  1. 1.
    Arbuès, F., Garcia-Valinas, M. A., & Martinez-Espinera, D. R. (2003). Estimation of residential water demand: A state of the art review. Journal of Socio-Economics, 32(1), 81–102.CrossRefGoogle Scholar
  2. 2.
    Ayadi, M., Krishnakumar, J., Matoussi, M.S., (2002). A panel data analysis of residential water demand in presence of nonlinear progressive tariffs. Cahiers du département d’économétrie, Université de Genève, No 2002.06.Google Scholar
  3. 3.
    Ben Cheikh, N., & Rault, C. (2016). The pass-through of exchange rate in the context of the European sovereign debt crisis. International Journal of Finance & Economics, 21(2), 154–166.CrossRefGoogle Scholar
  4. 4.
    Ben Zaied, Y., & Binet, M. E. (2015). Modeling seasonality in residential water demand: The case of Tunisia. Applied Economics, 47(19), 1966–1983.CrossRefGoogle Scholar
  5. 5.
    Ben Zaied, Y. (2013). A long-run analysis of residential water consumption. Economics Bulletin, 33(1), 536–544.Google Scholar
  6. 6.
    Camacho, M. (2004). Vector smooth transition regression models for US GDP and the composite index of leading indicators. Journal of Forecasting, 23, 173–196.CrossRefGoogle Scholar
  7. 7.
    Carrion-i-Silvestre, J., & Sanso, A. (2006). A guide to the computation of stationarity tests. Empirical Economics, 31, 433–448.CrossRefGoogle Scholar
  8. 8.
    Dalhuisen, J. M., Florax, R., De Groot, H., & Nijkamp, P. (2003). Price and income elasticities of residential water demand: A meta-analysis. Land Economics, 79(2), 292–308.CrossRefGoogle Scholar
  9. 9.
    Dandy, G., Nguyen, T., & Davis, C. (1997). Estimating residential water demand in the presence of free allowances. Land Economics, 73(1), 125–139.CrossRefGoogle Scholar
  10. 10.
    Eitrheim, Ø., & Teräsvirta, T. (1996). Testing the adequacy of smooth transition autoregressive models. Journal of Econometrics, 74, 59–76.CrossRefGoogle Scholar
  11. 11.
    Elliott, G., Rothemberg, T., & Stock, J. (1996). Efficient tests for an autoregressive unit root. Econometrica, 64, 813–839.CrossRefGoogle Scholar
  12. 12.
    Espey, M., & Shaw, W. D. (1997). Price elasticity of residential demand for water: A meta-analysis. Water Resources Research, 33(6), 1369–1374.CrossRefGoogle Scholar
  13. 13.
    Griffin, R. C., & Chang, C. (1991). Seasonality in community water demand. Western Journal of Agricultural Economics, 16(2), 207–217.Google Scholar
  14. 14.
    Johansen, S. (1988). Statistical analysis of cointegration vectors. Journal of Economic Dynamics and Control, 12(2–3), 231–254.CrossRefGoogle Scholar
  15. 15.
    Johansen, S. (1991). Estimation and hypothesis testing of cointegration vectors in Gaussian vector autoregressive models. Econometrica, 59(6), 1551–1580.CrossRefGoogle Scholar
  16. 16.
    Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root. Journal of Econometrics, 54, 91–115.CrossRefGoogle Scholar
  17. 17.
    Martinez-Espineira, R. (2007). An estimation of residential water demand using co-integration and error correction techniques. Journal of Applied Economics, 10(1), 161–184.CrossRefGoogle Scholar
  18. 18.
    Nauges, C., & Whittington, D. (2010). Estimation of water demand in developing countries: An overview. The World Bank Research Observer, 25(2), 263–294.CrossRefGoogle Scholar
  19. 19.
    Nauges, C., & Thomas, A. (2003). Long-run study of residential water consumption. Environmental and Resource Economics, 26, 25–43.Google Scholar
  20. 20.
    Nauges, N., & Reynaud, A. (2001). Estimation de la demande domestique d'eau potable en France. Revue Economique, 52(1), 167–185.CrossRefGoogle Scholar
  21. 21.
    Porcher, S. (2014). Efficiency and equity in two-part tariffs: The case of residential water tariffs. Applied Economics, 46, 539–555.CrossRefGoogle Scholar
  22. 22.
    Schleich, J., & Hillenbrand, T. (2009). Determinants of residential water demand in Germany. Ecological Economics, 68(6), 1756–1769.CrossRefGoogle Scholar
  23. 23.
    Teräsvirta, T. (1994). Specification, estimation and evaluation of smooth transition autoregressive models. Journal of the American Statistical Association, 89, 208–218.Google Scholar
  24. 24.
    Teräsvirta, T. (2004). Smooth transition regression modelling. In H. Lütkepohl & M. Kratzig (Eds.), Applied time series econometrics. Cambridge: Cambridge University Press.Google Scholar
  25. 25.
    van Dijk, D., Teräsvirta, T., & Franses, P. (2002). Smooth transition autoregressive models: A survey of recent developments. Econometric Reviews, 21, 1–47.CrossRefGoogle Scholar
  26. 26.
    Worthington, A., & Hoffman, M. (2008). An empirical survey of residential water demand modeling. Journal of Economic Survey, 22, 842–871.CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.ISTEC Paris and IHEC SfaxParisFrance
  2. 2.ESSCA School of ManagementAngersFrance
  3. 3.ESDES-Catholic University of LyonLyonFrance

Personalised recommendations