The Residental Water Demand Function in Amman- Zarka Basin in Jordan

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1 The Residental Water Demand Function in Amman- Zarka Basin in Jordan Mohammad Tabieh (1), Amer Salman (2), Emad Al-Karablieh (3), Hussein Al-Qudah (4) and Hazem Al-khatib (5) (1) Assistant Professor, Department of Agricultural Economics and Agribusiness, Faculty of Agriculture, University of Jordan, Amman Jordan, Tel: , Fax: , m.tabieh@ju.edu.jo (2) Professor, Department of Agricultural Economics and Agribusiness, Faculty of Agriculture, University of Jordan, Amman Jordan, Tel: , Fax: , asalman@ju.edu.jo (3) Professor, Department of Agricultural Economics and Agribusiness, Faculty of Agriculture, University of Jordan, Amman Jordan, Tel: , Fax: , karablie@ju.edu.jo (4) Associate Professor, Department of Agricultural Economics and Agribusiness, Faculty of Agriculture, University of Jordan, Amman Jordan, Tel: , Fax: , halqudah@ju.edu.jo (5) Associate Professor, Department of Finance, Faculty of Administrative and Financial Sciences, Al-Ahliyya Amman University Amman Jordan, Tel: , Fax: , drhazemkh@yahoo.com Abstract The water shortages in Jordan have made the urban water problem a central policy issue. The government directed all concerned agencies to develop a short, medium and long-term strategy for addressing the impending water crisis. Water authorities attempt to reduce the demand on fresh water and full cost recovery by using price policies. They increase the price of municipal water many times during the last five years. This study focuses on understanding the nature of household demand for water in Amman-Zarka basin, including estimation of residential demand functions for water by income classes and spatial distribution. The residential water demand function based on cross-section data of 1360 household is estimated using instrumental variables (IV) estimation techniques. The residential water demand is characterized by levels of water demanded in relation to marginal price, rate structure premium, level of household income and other welfare indicators. The results show that the estimated residential water demand elasticity is negative and weakly responsive to price (-0.47) for the basin, (-0.62 for Amman and for Zarka. Households with lower incomes responded less to higher water prices than wealthier household groups, not as hypothesized. This mean that the demand function, below certain levels becomes insensitive to increases in price. Household size, level of welfare, education, and number of bathrooms are positively correlated with water demand. Therefore, the low price elasticity of residential water demand suggests that the price mechanism is not appropriate tools for water conservation in a country with a high water scarcity. However, market segmentation, technological change in water device and non-price policies can be used as conservation tools for residential water. Therefore, further development and evaluation of non-price conservation policies for municipal uses of water should be undertaken. Keywords: Residential Water Demand, Price and Income Elasticities, Econometric Model. 324 office@multidisciplinarywulfenia.org

2 Corresponding Author: Mohammad Tabieh, PhD, Assistant Professor, Department of Agricultural Economic and Agribusiness Management, University of Jordan, Faculty of Agriculture, Amman, 11942, Jordan. and Tel: Fax: Introduction Increasing incomes and growing urban populations are putting pressure on municipal water supply and sewage treatment facilities, water authorities struggle to cope with rising deficits and increasingly stringent water quality regulations. The problem facing water policymakers and water utility managers is a lack of adequate information to determine the performance of price and nonprice policy instruments in their communities. The Water Authority of Jordan (WAJ) believed that because of increased water rates most households would reduce their usage, but they also anticipated many wealthier households would continue to use large amounts of water and pay higher water bills. The municipal water tariffs in Jordan are used as important economic incentives for water conservation. The tariffs are structured to discourage high water use by charging higher prices at higher quantities of water use. Also by setting the price levels to recover the cost of operation and maintenance and also the costs of the ongoing capital improvements in water supply systems provides an additional incentive for efficient use of water. The country is presently undertaking extensive reform and huge investment program into the water sector. Supply and demand forecasts indicate that a significant shortfall will continue to exist. The problem is not only that there is a shortage in water resources but this is compounded by the high population growth rate of the country. The rate of population growth in Jordan is 2.5 percent, and with a current population of around 5.55 million, it is expected to reach 8 million by the year 2025 (DOS, 2006). The settlement pattern is heavily influenced by water availability. About 91% of the total population lives in the north-western part of the country, with 53% living in Amman and Zarqa area. The Amman Zarqa Basin (AZB) covers 4,074 km2, (DOS, 2006). However, no single action can remedy the country's water shortages; rather many actions are necessary to increase overall water availability. One strategy is to focus on increasing the usable supply of water and the amount of wastewater reuse. Another strategy is to reduce water demand by adopting water conservation programs and improving water use efficiency, while yet a third involves a water pricing policy. This latter policy has the advantage that the revenues could be used to finance other developments like the installation of desalination plants. It is evident that Jordan is not able to meet its food requirements using the conventional and non-conventional water resources available within its boundaries. The option that may help to achieve food security is the physical transportation of water and food items across basins, countries, and regions (Haddadin et. al., 2006) The Ministry of Water and Irrigation (MWI) is the official body responsible for the overall monitoring of the water sector, water supply and wastewater system, related projects, planning and management. The ministry has recently established a Water Demand Management unit to provide support and information to entities interested in reducing water consumption, monitor misuse of water and recommending enforcement and regulatory measures and to increase awareness among the general public to a better understanding and appreciation for demand management. As a part of Demand Side Management (DSM) the Government of Jordan embarked upon a privatization program, the goal being to orient Jordan's economy more towards the private sector. WAJ, one of the authorities of the MWI entered into a management contract with a consortium led by a French company on April 1999, for six years to manage all water and wastewater related services in Amman Governorate. The objectives includes increasing the efficiency of enterprises, water distribution, water billing, improving the collection procedures, reducing the unaccounted for water rehabilitation of networks. Increased reliance on demand side management (DSM) policies to manage existing water supplies is stimulating substantial debate. Debate focuses on both the effectiveness of alternative policy instruments in increasing efficiency and their equity implications for residential users. One advocate higher residential water prices as a means of reducing demand, others argue that non-price policies constitute the only viable means to reduce residential demand. The domestic water supply is rationed through intermittent supply, particularly in the summer season. People are compelled to invest in storage tanks and buy additional water from private vendors for example at high prices in order to satisfy their water needs and improve supply 325 office@multidisciplinarywulfenia.org

3 reliability. Furthermore, WAJ attempts to bridge the gap between supply and demand focused not only on supply management, including rationing of water service, but also on demand management measures and the adoption of a public information policy. The non-government organizations were mobilized in the informational campaign in an attempt to increase public awareness and participation. No formal attention has been given to analyzing how household characteristics influence price and non-price policy responsiveness and their associated distributional implications in Jordan. Reliable estimates of price and income elasticities are essential for good planning in resource development projects involving large capital expenditures. The effect of a price change upon demand and revenue should be considered before expensive construction, which may necessitate a price rise. Household characteristics such as income, number of persons in the household, water reliability, residential storage capacity, intensity of water-using capital, and landscaped area are also expected to influence residential water demand responds to specific policy instruments (Renwick and Archibald, 1998). Hence, little is known about household demand behavior in such a supply environment of severe water scarcity. 2. Water Resources in Jordan The water resources in Jordan are divided into two main parts: conventional resources are surface and groundwater. The non-conventional included treated wastewater and desalination of sea water and brackish water. The major problems facing conventional water resources development are quality deterioration and resource depletion. Various sources of non-conventional supply have been considered to meet this shortfall. The non-conventional resources could increase water supply enough to overcome the shortage and to satisfy the different water needs of the country. Desalination of brackish groundwater could reduce the need for additional water supply to cover the country s water needs. Sharing water resources is considered very important to water supplies in the present and future. The annual safe yield of groundwater is 275 million cubic meters (MCM) per year while current pumping is more than 450 MCM (Al-Kharabsheh and Ta any, 2005). Jordan is facing an unremitting imbalance between the total water demands and the available supply of freshwater. In the year 2003, only 890 MCM of the estimated total demand of 1,388 MCM were delivered to all users in Jordan. This represents a shortfall of 498 MCM or 36 percent of total water needs. By 2020, the total demand for water is expected to increase to 1,685 MCM because of the large increases in population, improvements in living standards and economic activity. While the new sources of water supply are expected to increase the available water from the current level 890 MCM per year to 1,289 MCM per year by 2020, a shortfall of 396 MCM representing 24 percent of total demand will remain and will have to be managed through appropriate demand-reduction programs.(mwi, 2004). Investment projects to augment water supply are under construction, hand in hand with investments in water loss reduction programs and in the development of water management infrastructure to increase the production of fresh water supply. Major water development programs in the country as described in the national water mater plan include the construction of Wehda dam, Zara-Ma'in brackish water desalination, and Disi-Amman water conveyance, in order to alleviate water shortage mostly in the urban areas of Amman (MWI, 2004). As a result of water scarcity public water supply is rationed through intermittent supply (water is supplied only once or twice a week for hours). People are compelled to invest in storage tanks and to buy additional water from private vendors in order to satisfy their water needs and to improve supply reliability. In summer water demand is increasing due to high temperature and increasing in population greatly by people returning from abroad. The number of new customers within Amman is increasing at about 5% each year. But even during the winter season household water supply is not 24 hours a day and 7 days a week, although interruptions are less frequent (supply of 2-3 days a week). The daily supply of water about 0.35 MCM of the 115 MCM supplied in 2004, 45% came through the Zai water treatment plant. The source of the water is the Yarmouk River transported to Zai through King Abdullah canal. After treatment at Zai the water is pumped to Dabouq reservoir on the outskirts of Amman. Other water sources outside Amman provide around 25% of the supply. Major sources are groundwater of Lajjoun near Karak, Hidan near Madaba and Khaw near Zarqa. The remaining 30% of the water comes from wells and springs within the boundary of the city. The 326 office@multidisciplinarywulfenia.org

4 water network is about 6000 km long and is made up of pipes of diameters from 1400 mm for mains to 25mm for house connections. About 16 pumping stations currently move the water around the network. Water is supplied at the times and places set out in the rationing programme, there are around 45 water reservoirs around the city release water by gravity. These are able to store up to 550,000 m 3 of water. Almost half of this storage is in the single reservoir at Dabouq to the west of the city. The high ratio of non-revenue water (NRW) or water that is not accounted due to illegal connections, leakages, human errors in meter readings and in processing. Nearly 46% of water produced by WAJ is not billed or is not accounted for. The WAJ efforts to reduce the high rate of NRW focused on the replacement of networks to minimize leakage and, and locating illegal connections. 3. Objectives There have been a few household-level demand studies, but these were usually conducted in relation to health, nutrition, poverty, and urban studies. Socioeconomic factors greatly influence the water demand of the household. Higher population size and standards of living boost demand for finite quantities of water. Consumption patterns are changing, as people become increasingly educated, exposed to other cultures, and concerned with health risk and food safety. In order to help policy makers in determining optimal pricing policies and non-price policies related to water demand management, this study focus on understanding the nature of residential household demand for water, and attempt to express the residential water demand functions by levels of water charges, level of household income in Amman metropolis. 4. Method and Approach There are a large number of residential water demand studies. Authors usually use single equation models, aggregate data, and average cost as a proxy for water's price and found residential water demands to be price and income inelastic (see Arbués et al., 2003 for a survey of these literature). Using the price mechanism to manage water demand has been an issue of growing concern among decision-makers during the last two decades. Economists have tried to use the traditional demand theory to highlight the effects of different types of tariffs in estimating demand functions and normally focusing on the calculation of price and income elasticities. The water demand literatures indicates that the most problem encountered in residential water demand estimation is whether using the average or marginal price as a relevant measure in estimating the demand function, as early reported by Falck (1941) that the average residential consumption per customer does not adequately describe the consumption pattern of the residential class of consumers, Furthermore, rate schedules tariff, average price and average consumption are in varying degrees mutually dependent variables. Using the average price assumes price as an independent variable and consumption as the dependent variable. But price, as measured in terms of average rate, is not an independent variable, because all the price of residential water is not a single price but a price schedule. The typical price schedule yields an increasing or decreasing average rate per cubic meter as the individual customer increases his monthly consumption. Therefore, the problem of simultaneous equation in multipart pricing rate schedules and sample selection bias when a rate schedule combining with a fixed charge for consumption below lower block tariff. (Arbués et al, 2003; Bachrach and Vaughan, 1994). Therefore, the average price is unsuitable as a measure of price in an investigation of the effect of price on water consumption is that, particularly at low levels of consumption, the average price is not closely related to the marginal price faced by a consumer. According to economic theory, it is the marginal price to which a customer responds when selecting the level of consumption that maximizes his utility (Griffin et al, 1981). In the water demand equation, a difference variable representing the difference between what the consumer actually pays and what he would pay if all water demanded was charged at the marginal rate incorporated to account the effect of intra-marginal rate changes on water demand under increasing block pricing schedules, in accordance with the "Taylor-Nordin" specification (Nordin, 1976). The demand model was further elaborated by Griffin and Martin (1981) who introduced a new variable called Rate Structure Premium (RSP). Since the marginal price is greater than the 327 office@multidisciplinarywulfenia.org

5 average price for an increasing rate The RSP variable act as a lump sum income transfer and is expected to correlate positively with water use. Agthe et al. (1986) demonstrated that the same conceptual model could be applied to situations in which the rate schedule contained increasing block rates. structure for consumption above the allowance, Young et al. (1983) argue that an increasing rate structure is more effective in reducing water consumption than a uniform or a decreasing rate structure, provided that the consumers are sensitive to price. The econometric model take the form Qd = f (P, Z), which relates water consumption to some measure of price (P) and other factors (Z) such as income, household type, or household composition such as number of adult or children in the household, levels of water charges in relation to household income, education, season, temperature, welfare indicator and quality of water service (Nieswiadomy 1992; Foster and Beattie. 1979). The water demand utilized in this study in a reduced form is: Qd = f (MP, RSP, I, Z) + N, Where Qd = quarterly water use for a typical household in AZ basin, MP = marginal price of water for the typical consumer in JD, RSP = Rate structure premium described above, I = annual household income in JD, Z = socio economic variables. These variables are household size (HHS); education (EDU) to indicate respondent's education as (1) = Basic, (2) = secondary, (3) = Diploma, (4) = University graduate, (5) = Post graduate, house type (HTYPE) a dummy for of house type, (1) for a house with garden and (0) for apartment or flat, bathrooms (BATH) to indicate the number of bathrooms in the house. With multipart block rate, since the prices are endogenously determined by consumer a long with quantity demanded, the necessary condition for unbiased and consistent parameters estimation in Ordinary Least Square (OLS) techniques are violated. Therefore a simultaneous equation problem must exist when using block rate schedules. To overcome the problem of simultaneity instrumental variable (IV) estimators such as two stages least square (2SLS) are preferable to OLS to produce a consistent parameters estimate (Barkatullah, 2002; Arbués et al, 2003) The instrumental variables (IV) estimation techniques address the problem of endogenous price variable (MP) and rate structure premium (RSP) which are correlated to the error term in the right hand side of the demand equation described as Billings and Agthe (1980, 1981) Data The metropolitan area of Amman-Zarka was chosen for analysis because this provides a good example of the multi-rate structure, which consists of a fixed charge plus a block rate per unit which is the same for all levels of consumption with block. This multi-rate structure is common in many other countries. The study area is defined as the metropolitan area of Amman (53% of Jordan population). The WAJ and LEMA are responsible for the provision of water supplies to households, industries, and commercial. Greater Amman has a population of around 2.1 m people: There are around 380,000 customers of them are domestic customers that use water on a daily basis for living. The household is treated as the consuming unit. A data of 1360 observations was drawn from the household expenditure and income survey conducted by the Department of Statistics in 2003, 70% of observations are from Amman metropolis and 30% from Zarak area. The household questionnaire covered information such as age, educational attainment, and occupation of both the respondent and spouse; characteristics of residence; household income and assets, household expenses on food and non-food, inventory of water, quantity, and quality of water consumed; uses of water from various sources; water conservation and sanitation practices. Water demand in summer is greater than in winter. To avoid this seasonal variation in water demand, the second quarter of the billing year was used. 328 office@multidisciplinarywulfenia.org

6 5. Results and Discussion Jordan is presently suffering from decreasing residential per capita consumption reaching 86 l/c/day in 2002 (126 l/c/day including domestic, tourism and industrial), it is expected that such a trend will continue if no additional resources are developed. Jordan is therefore striving not only to maintain domestic consumption at its current levels, but also to boost it to internationally accepted standards, at 150 l/c/day. The distribution of households by source of water based on the survey shows that 97% of households obtain water from the formal WAJ piped water connection system. Other relies on private vendors to secure water. Furthermore, about 46% of the consumers compliant with weekly cutoff of water, water rationing is implemented 20 years ago; consumers obtain water 18 hours within 4-5 days. All houses install water roof tanks with a capacity range between 2-4 cubic meters Table 1 shows the distribution of residential per capita water consumption by income class. Per capita water consumption with the highest number (19%) having annual per capita income with more than 800 JD. Low per capita water consumption is predominantly characterized by low incomes, whereas 12.2% of households have annual per capita income below 200 JD. The result shows that about 50% of the poor household consumes less than 40 l/c/d. whereas 40% of the wealthy household consumes more than 100 l/c/d. Table 1: Distribution of per capita water consumption by per capita income classes. Water consumption Per Capita Income (JD) l/c/day <= > 800 Total < % 7.8% 2.7% 1.0% 0.6% 17.8% % 7.3% 3.5% 1.6% 1.0% 15.8% % 5.7% 4.0% 1.6% 1.9% 14.9% % 3.9% 4.2% 1.7% 2.0% 13.0% % 3.1% 2.7% 1.1% 2.2% 9.6% % 1.9% 1.7% 0.9% 1.9% 6.7% % 1.3% 1.2% 0.7% 1.8% 5.3% > % 3.2% 3.3% 2.5% 7.6% 17.0% Total 12.5% 34.2% 23.3% 11.0% 19.1% 100.0% WAJ has decided that special increases to water bills should be applied from the 4th billing cycle of These increases are to cover the rising costs of power and fuel used in the treatment and distribution of water in Amman. The new charges are introduced gradually. Bills produced in November 2005 attract one third of the new charge and those produced in December two thirds. Bills produced from the 1st January 2006 onwards attract the whole of the new charge. For the new connection a minimum connection fees is 240 JD. The WAJ regulates water tariffs because of the nature of water production and distribution. The water distributed by private vender also are set and regulated centrally. Restructuring of municipal water tariff, made effective in 1997, and brought in increases in revenue to the WAJ and profit to LEMA. The consumers had to carry the burden of WAJ because they have been paying for the unaccounted-for water. It is felt that it is not equity to reflect the burden of WAJ in the water tariff in which WAJ itself should carry the burden of its inefficiency. The estimation results of the water demand equation for the Amman-Zarka basin is shown in Table 2. The result indicates good model performance. All coefficients generally exhibit expected signs and statistical significance. The results appear robust to changes in specification, and sub-sample analysis. The adjusted R 2 -square for the two-stage least squares 329 office@multidisciplinarywulfenia.org

7 (2SLS), is This adjusted R-square is comparable to earlier studies Nieswiadomy and Molina (1989) models they ranged from.11 to.46, and for the Nieswiadomy (1992) marginal price models they ranged from.07 to.44, and Salman el. al., (2006) was for the household model and per capita model. In the demand equation, the water quantities, price and income was in the double log form in order to derive price and income elasticities directly. The coefficient on the marginal price of water (MP) is, as expected, negative and statistically significant (column 1, Table 2). The estimated short-run own-price elasticity of demand equals -.47, implying a 10 percent increase in water price will reduce aggregate demand by 4.7 percent. This value falls within the realm of sound economic logic and compare well with other studies (Salman et. al., 2006; Taylor et al., 2004; Arbués et al., 2003; David and Inocencio, 1996). The economic theory suggests that residential water demand should be relatively price inelastic, the argument that residential consumers do not respond to higher prices for several reasons. (1) there exists no close substitutes for water in most of its uses, (2) the amount of money spent on water is generally a relatively small share of the typical household budget, and (3) water is frequently demanded jointly with some other complementary good (Renwick and Archibald, 1998) Furthermore, the coefficient of RSP is positive as expected (Foster and Beattie, 1979; Renwick and Archibald, 1998) The bill difference variable was used to incorporate the income effect of the rate structure. It is found to have a statistically significant but numerically small effect on consumption. Furthermore, Salman et, al. (2006) estimated the aggregate household own-price elasticity for residential water in Jordan by This result does not reflect the spatial distribution or income distribution among population. By estimating the water demand function for Amman and Zarka individually, the own-price revealed to be different between two cities, the water price elasticity in Amman as shown in column 2 is whereas for Zarka is This is not surprising results, since more wealthy household are resident in Amman. A World Bank report on the poverty assessment in Jordan indicates that the poverty is significantly increased in Zarka from 16 percent in 1997 to 22 percent in There is an increase in unemployment in Zarka (from11 to 14 percent), whereas in all other governorates, except Zarqa, poverty declined significantly. Moreover, coefficients of household income are significant. The household income elasticity for water is positive (0.05), the magnitude of the income variable implies that a 10 percent increase in income will increase monthly household water demand by 0.5 percent. This income elasticity of demand is comparable with other residential water demand studies, (see the survey of Arbués et al., 2003 and Nieswiadomy 1992). The income elasticity as estimated by Salman et, al. (2006) for residential water in Jordan is Table 2: Estimation of Household Water Demand Function for Amman-Zarka Basin Dependant variable Amman- Zarka Basin Amman City Zarka City Low Income group Middle income group High income group Constant 1.567*** *** 2.209*** 2.338*** * (6.04) (0.31) (14.39) (4.65) (4.14) (-1.72) MP *** -.620*** * *** *** ** (-7.71) (-5.83) (-2.19) (-3.75) (-5.11) (-2.40) RSP 0.050*** 0.058*** 0.049*** 0.053*** 0.054*** 0.046*** (22.25) (12.76) (19.01) (16.92) (20.87) (5.14) I ** 0.029** 0.044* 0.020** 0.053** 0.255** (2.09) (2.75) (1.90) (2.32) (2.79) (2.43) HHS 0.022*** 0.032*** 0.018*** 0.016* 0.017*** 0.021** (4.20) (3.92) (3.66) (2.42) (3.45) (2.94) 330 office@multidisciplinarywulfenia.org

8 EDU (0.18) (-1.17) (0.67) (-0.30) (0.34) (-0.62) HTYPE ** ** ** *** (-1.89) (0.05) (-1.83) (-1.14) (-2.08) (-3.70) BATH 0.032* 0.003** 0.045** ** (6.04) (2.31) (2.74) (4.65) (4.14) (-0.72) R F-test Values of "t" statistics in Parentheses, Instrumental variables: RSP, Income, HH Size, Education, House type, Bathroom, Water Source (1= WAJ, 0= otherwise, house ownership (1=owned, 0= otherwise) Urban (1= urban resident, 0= otherwise), * = significant at 0.10; ** = significant at 0.05; *** = significant at 0.01 The signs and statistical significance of the socioeconomic and other variables demonstrate the model's robust performance. The coefficient on the number of household members (HH) is, as expected, positive and significant. The preliminary result of the population and housing census conducted in 2004 (DOS, 2006) show a reduction of household size in Jordan from 6.7 persons in 1979 to 6 person in 1994 and to 5.3 persons per household in In the model the household size was shown to be significant in determining the level of water demand. A continuing trend in the reduction of household size is likely to reduce the level of household water demand, with a 10 percent reduction in size resulting in a decrease of up to 11.3% percent in water demand. The number of bathroom and house type, which serves as a proxy for intensity of water-using capital, has the predicted positive effect on water demand. Households with more water-using capital, all other factors held constant, demand more water. Household resident in a flat or apartments without garden consumes less water compared to customers resident in an individual houses. However, it is worth wile mentioning that the total number of households practicing urban agriculture in Amman metropolis is 50,097 with a total cultivated area in the housing units is 648, 3 hectares. The majority of households (86% of the total) are using public network as source of irrigation (DOS, 2001). However, the aggregating water demand across households in the basin provides policymakers with a measure of the price responsiveness of aggregate demand; it does not tell them about the distributional consequences of higher prices on specific household groups. Results indicate that price responsiveness varied significantly according to place and income and other household characteristics. Households with lower incomes responded less to higher water prices than wealthier household groups, not as hypothesized. This mean that the demand function, below certain levels becomes insensitive to increases in price. This conclusion is not surprising in generally low income households. Such an inelastic price response suggests that increasing water prices can't be progressively an effective and efficient means of managing water consumption as water is a vital good; when households are short of water their willingness to pay for water is very high. The probability of purchasing water from a vendor is increasing with increasing income. The magnitude and statistical significance of the estimated own-price elasticities of demand by income group (low <JD 4000, middle JD and high above JD 8000) imply that a 10 percent increase in water prices would result in a 1.6 percent reduction in demand for low income households, a 3.2 percent reduction for moderate income households, and a 11 percent reduction for wealthy households. As a consequence, price policy employed in the Amman-Zarka basin distributed the conservation burden to lower income households. These results corroborate the argument that price policy results in a non-uniform incidence of conservation burden and highlights the importance of non-price policy instruments based on household characteristics. 331 office@multidisciplinarywulfenia.org

9 6. Conclusions Two stage regression analyses with instrumental variables was used to estimate model residential water demand for the Amman-Zarka basin in Jordan for a sample of 1360 households drawn from household expenditure survey conducted by the Department of Statistics in The conclusion of this empirical research conducted in Amman metropolis indicating that residential water demand is price inelastic, making price a relatively ineffective DSM policy. Non-price policies are also expected to influence water demand both directly, by restricting demand, and indirectly, by encouraging adoption of water efficient technologies, such as low flow showerheads and rebates for adoption of low flow toilets, enforced the irrigation restrictions for urban agriculture, and imposing significant marginal price penalties for households exceeding their allotment based on historical household water use patterns. The result shows that wealthy consumers are responding to marginal price while face the multipart tariff structure. The magnitude of the price elasticity suggests that substantial increase in the water tariff will affect the income of the disadvantaged groups but will not decrease their consumption. Factors such as property value and household size were also shown to be significant in determining the level of demand. A continuing trend in the reduction of household size is likely to reduce the level of household demand, with a 10 percent reduction in size resulting in a decrease of up to 11.3 percent in demand. DSM policies are expected to influence demand directly and indirectly by inducing technological change in house equipments. Higher water prices are expected to directly reduce demand in the short run and stimulate the demand for water efficient technologies by increasing the relative benefits associated with adoption in the medium to long run. Therefore, further development and evaluation of nonprice conservation policies for municipal uses of water should be undertaken. 7. References Agthe, D. E., R. B. Billings, J. L. Dobra, and K. Raffle (1986). A Simultaneous Equation Demand Model for Block Rates. Water Resources Research 22 (1):1-4. Al-Kharabsheh A.; Ta any R. (2005). Challenges of Water Demand Management in Jordan. Water International. 30 (2), pages Arbués F., García-Valiñas, M. A. & Martínez-Espiñeira. R. (2003). Estimation of residential water demand: a state-of-the-art review. Journal of Socio-Economics Bachrach M. and Vaughan W. J. (1994). Household water demand estimation. Inter-American Development Bank. Working paper ENP106. Barkatullah, N. (2002). OLS and instrumental variable price elasticity estimate for water in mixedeffect models under a multipart tariff structure. Working papers from Sydney - Department of Economics. The University of Sydney. Australia. Billings, R. B., and Agthe D. E. (1980). "Price Elasticities of Water: A Case of Increasing Block Rate. Land Economics. 56 (Feb.): Billings, R. Bruce; Donald Agthe E. (1981). Price Elasticities for Water: A Case of Increasing Block Rates: Reply. Land Economics, Vol. 57, No. 2, David C. C. and Inocencio, A. B (1996). Understanding Household Demand for Water: The Metro Manila Case. Discussion Paper, EEPSEA, International Development Research Centre DOS (2001).Urban Agriculture Survey in Greater Amman for Department of Statistics, Amman. Jordan DOS (2006). Preliminary Result of the Population and Housing Census Department of Statistics, Jordan Retrieved 28/06/ office@multidisciplinarywulfenia.org

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