Price Elasticity of the Residential Water Demand in Latin America: Empirical Analysis for Chile, Colombia, and Peru

The Latin American region lacks information on residential water demand and its price elasticity, in contrast to the extensive literature available in developed countries. To address this gap, we estimate residential water demand and its price elasticity in Chile, Colombia, and Peru using a discrete-continuous choice (DCC) model that accommodates nonlinear increasing block tariff (IBT) structures. We utilize household-level datasets for Peru and Colombia and a large administrative panel in Chile. Our findings reveal that the price elasticity of water demand varies significantly across countries. Chile exhibits moderately inelastic demand ([Formula: see text] overall, [Formula: see text] during summer months), while Colombia lies in a mid-range ([Formula: see text]), and Peru shows greater price responsiveness ([Formula: see text]). Furthermore, we find variations within each country when we analyze different levels of observed consumption by households. Additionally, household characteristics such as size and income are important drivers for understanding consumption patterns. Our research highlights the need for tailored policies that account for local consumption behaviors and socio-economic factors to improve the effectiveness of block tariff systems, given that IBT holds relevance from a policy perspective. These findings contribute to the literature on water pricing in Latin America and provide evidence-based insights for policymakers.