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... established that the uncompensated effect was, in fact, close to zero because the income and substitution effects of a tax increase could effectively cancel each other out in the data (Hausman 1981; =-=Blundell and MaCurdy 1999-=-; Heim and Meyer 2001).sHausman’s result is, in large part, attributable to virtual income – the implicit subsidies from infra-marginal tax 11Even in the fourth block in the sample cities analyzed her...

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... utilities’ adoption of increasing block prices to 2The comparison of market-based and command-and-control approaches to environmental policy has a long history (Pigou 1920; Crocker 1966; Dales 1968; =-=Montgomery 1972-=-; Baumol and Oates 1988), but few studies have addressed water conservation policies in this framework (Michelsen et al. 1998; Corral 1997).s3Responses to IBPs in other markets are also unclear (Reiss...

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...roversial result of Hausman’s labor supply models is his estimation of a significant negative compensated wage elasticity of labor supply, implying substantial deadweight losses from income taxation (=-=Hausman 1981-=-).sEarlier studies had found uncompensated wage elasticities close to zero and thus concluded that income taxation had negligible effects on desired work hours.sApplications of Hausman’s model account...

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...nvex case are straightforward extensions of the convex case described here.sThe decreasing block case has been developed generally (Moffit 1986, 1990); in the literature on labor supply and taxation (=-=Burtless and Hausman 1978-=-; Hausman 1985); and for 7 devoted to water expenditures.sIn fact, any utility service area heterogeneity that is systematically correlated with price structure choice might explain the higher observe...

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...ion of increasing block prices to 2The comparison of market-based and command-and-control approaches to environmental policy has a long history (Pigou 1920; Crocker 1966; Dales 1968; Montgomery 1972; =-=Baumol and Oates 1988-=-), but few studies have addressed water conservation policies in this framework (Michelsen et al. 1998; Corral 1997).s3Responses to IBPs in other markets are also unclear (Reiss and White 2001; Iyenga...

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...) and Hewitt (2000).sIn addition, price elasticity estimates of water demand under increasing block prices have been on the high end of elasticity estimates as a whole, controlling for other factors (=-=Espey et al. 1997-=-; Hewitt and Hanemann 1995; Rietveld et al. 1997; Pint 1999). 3 separate demand from supply.sUnder IBPs, this problem is twofold.sFirst, marginal prices rise as consumption increases.sThus, even thoug...

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...ists have encouraged water utilities’ adoption of increasing block prices to 2The comparison of market-based and command-and-control approaches to environmental policy has a long history (Pigou 1920; =-=Crocker 1966-=-; Dales 1968; Montgomery 1972; Baumol and Oates 1988), but few studies have addressed water conservation policies in this framework (Michelsen et al. 1998; Corral 1997).s3Responses to IBPs in other ma...

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....sIn addition, price elasticity estimates of water demand under increasing block prices have been on the high end of elasticity estimates as a whole, controlling for other factors (Espey et al. 1997; =-=Hewitt and Hanemann 1995-=-; Rietveld et al. 1997; Pint 1999). 3 separate demand from supply.sUnder IBPs, this problem is twofold.sFirst, marginal prices rise as consumption increases.sThus, even though price schedules are set ...

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...pricing (Hewitt and Hanemann 1995; Rietveld et al. 1997; Pint 1999), drawing 7 Prior to Hewitt and Hanemann (1995), only three published studies had estimated price elasticities in the elastic range (=-=Howe and Lineweaver 1967-=-; Danielson 1979; Deller et al. 1986). 6 upon an approach developed to estimate labor supply effects of progressive income taxation.7sIn addition, two meta-analyses have found that consumers facing IB...

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...pects within the framework of the discrete-continuous choice model of Hausman.sThe econometric complications caused by these features have been discussed in the literature (Burtless and Hausman 1978; =-=Moffitt 1986-=-, 1990).sRegarding the wedge between average and marginal price, for households consuming anywhere above the first linear segment on a piecewise linear budget constraint, the marginal price is not the...

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...sBut attempts to measure effects of these small inframarginal rate income transfers in isolation have been unsuccessful, both in electricity and water demand (Hausman et al. 1979; Deller et al. 1986; =-=Nieswiadomy and Molina 1989-=-).11sWithout the substantial “compensation” through virtual income from the progressive tax rate analysis, and without competing income and substitution effects, one would not expect price elasticitie...

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... ofsinfra-marginal price changes as lump-sum changes in household income was developed in the labor supply literature (Hall 1973; Burtless and Hausman 1978), and in the electricity demand literature (=-=Nordin 1976-=-; Taylor 1975).sThe first application to water demand was by Billings and Agthe (1980).s8 The use of IBPs creates a wedge between average and marginal price and makes these prices endogenous to the co...

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...nn 1995; Rietveld et al. 1997; Pint 1999), drawing 7 Prior to Hewitt and Hanemann (1995), only three published studies had estimated price elasticities in the elastic range (Howe and Lineweaver 1967; =-=Danielson 1979-=-; Deller et al. 1986). 6 upon an approach developed to estimate labor supply effects of progressive income taxation.7sIn addition, two meta-analyses have found that consumers facing IBPs are more pric...

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...er demand under increasing block prices have been on the high end of elasticity estimates as a whole, controlling for other factors (Espey et al. 1997; Hewitt and Hanemann 1995; Rietveld et al. 1997; =-=Pint 1999-=-). 3 separate demand from supply.sUnder IBPs, this problem is twofold.sFirst, marginal prices rise as consumption increases.sThus, even though price schedules are set by regulators, the upwardsloping ...

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... will be biased and inconsistent.sThis problem has been addressed by estimating instrumental variables (IV) models, such as two-stage least squares, for both labor supply and water and energy demand (=-=Hausman et al. 1979-=-; Agthe et al. 1986; Deller et al. 1986; Nieswiadomy and Molina 1988, 1989).sWhile such models can estimate downward-sloping demand curves, they exhibit three key limitations.sFirst, simultaneous equa...

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... the case of water supply (Hewitt 1993; Hewitt and Hanemann 1995).s9The treatment ofsinfra-marginal price changes as lump-sum changes in household income was developed in the labor supply literature (=-=Hall 1973-=-; Burtless and Hausman 1978), and in the electricity demand literature (Nordin 1976; Taylor 1975).sThe first application to water demand was by Billings and Agthe (1980).s8 The use of IBPs creates a w...

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...essed by estimating instrumental variables (IV) models, such as two-stage least squares, for both labor supply and water and energy demand (Hausman et al. 1979; Agthe et al. 1986; Deller et al. 1986; =-=Nieswiadomy and Molina 1988-=-, 1989).sWhile such models can estimate downward-sloping demand curves, they exhibit three key limitations.sFirst, simultaneous equations models can be used only to estimate elasticities conditional o...

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...ypically more costly to develop than current supplies (Hanemann 1997).sThus, pricing all units at LRMC may cause utility revenues to exceed expenses, sometimes substantiallys(Moncur and Pollack 1988; =-=Hall 2000-=-).sIncreasing-block pricing allows utilities to charge LRMC for the “marginal” uses (lawn-watering and the like), while adjusting block cutoffs and infra-marginal prices to meet zero-profit constraint...

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...ply, the efficient price.sLRMC can be greater than average cost, because LRMC reflects the cost of new supply acquisition, and new supplies are typically more costly to develop than current supplies (=-=Hanemann 1997-=-).sThus, pricing all units at LRMC may cause utility revenues to exceed expenses, sometimes substantiallys(Moncur and Pollack 1988; Hall 2000).sIncreasing-block pricing allows utilities to charge LRMC...

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...onsumption choices: consume on the interior of segment one, on the interior of segment two, or at the kink point – the quantity at which the marginal price increase occurs.8 the case of water supply (=-=Hewitt 1993-=-; Hewitt and Hanemann 1995).s9The treatment ofsinfra-marginal price changes as lump-sum changes in household income was developed in the labor supply literature (Hall 1973; Burtless and Hausman 1978),...

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...able. Economists have encouraged water utilities’ adoption of increasing block prices to 2The comparison of market-based and command-and-control approaches to environmental policy has a long history (=-=Pigou 1920-=-; Crocker 1966; Dales 1968; Montgomery 1972; Baumol and Oates 1988), but few studies have addressed water conservation policies in this framework (Michelsen et al. 1998; Corral 1997).s3Responses to IB...

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...has a long history (Pigou 1920; Crocker 1966; Dales 1968; Montgomery 1972; Baumol and Oates 1988), but few studies have addressed water conservation policies in this framework (Michelsen et al. 1998; =-=Corral 1997-=-).s3Responses to IBPs in other markets are also unclear (Reiss and White 2001; Iyengar 2005). 2 expand the fraction of consumption that is priced at the long-run marginal cost (LRMC) of water supply, ...

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...nconsistent.sThis problem has been addressed by estimating instrumental variables (IV) models, such as two-stage least squares, for both labor supply and water and energy demand (Hausman et al. 1979; =-=Agthe et al. 1986-=-; Deller et al. 1986; Nieswiadomy and Molina 1988, 1989).sWhile such models can estimate downward-sloping demand curves, they exhibit three key limitations.sFirst, simultaneous equations models can be...

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...icity estimates of water demand under increasing block prices have been on the high end of elasticity estimates as a whole, controlling for other factors (Espey et al. 1997; Hewitt and Hanemann 1995; =-=Rietveld et al. 1997-=-; Pint 1999). 3 separate demand from supply.sUnder IBPs, this problem is twofold.sFirst, marginal prices rise as consumption increases.sThus, even though price schedules are set by regulators, the upw...

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...mers’ budget constraint kink points are uncertain – they depend on information about income tax itemizations and deductions, typically unknown – creating measurement error presumed to bias estimates (=-=Heckman 1983-=-; Gan and Stahl 2002).sIn water demand analysis, the critique is irrelevant because budget constraint kink points correspond to administratively-set block cutoffs and, thus, are known with certainty.s...