Price Elasticity of Demand for Pipe-Borne Water: A Pre-Requisite for Solving the Water Problem in the Colombo City

Abstract

Water problem in the Colombo city has aggravated over the time. Thus, encouraging consumers for responsible water consumption is imperative. As the city is almost completely reliant on pipe-borne water, water tariff could be utilized in this effort. However, as water is a basic need and a human right, an upward revision of tariff should not deprive consumers from satisfying essential needs, while discouraging wasteful consumption. Therefore, this study attempted to identify whether the consumers are sensitive to changes in water tariff, whether there exists a disparity among different blocks of tariff with respect to Price Elasticity of Demand and identify different sensitivities of levels of consumption to an increase in tariff. In order to achieve the research objectives, the Price Elasticity of Demand for pipe-borne water, overall and block-wise, was analyzed, before and after the last revision of tariff in 2012. Results revealed that after the revision, overall consumption had reduced and out of nine blocks, first three and last two were the least sensitive and the four blocks in the middle were the most sensitive. Thus, it was recommended that in order to discourage wasteful consumption, unit rates of highly sensitive blocks should be increased and to preserve economic efficiency and welfare, the tariff for least sensitive blocks should not be revised significantly.