Estimating Residential Water Demand Using the Stone-Geary Functional Form: The Case of Sri Lanka

This paper formulates a demand model for residential water in Sri Lanka using the Stone-Geary functional form. This functional form considers water consumption to be composed of two parts—a fixed and a residual component. The presence of these two components means it is possible to estimate a threshold below which water consumption is non-responsive to price changes. In turn, this can provide policy makers with a better understanding of the degree to which price changes will affect water consumption and the extent to which price instruments can be utilised to raise additional revenues. These revenues could then be used to extend pipe-borne water infrastructure to a greater proportion of the population than is currently the case. The findings presented here show the portion of water use that is insensitive to price changes in Sri Lanka is between 0.64 and 1.06 m³ per capita per month. The results indicate that price elasticity ranges from -0.11 to -0.14 while income elasticity varies from 0.11 to 0.14. Combined, these findings suggest water authorities could raise revenue via price increases to fund critical infrastructure extension.