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Application of the ML Hausman approach to the demand of water for residential use: heterogeneity vs two-error specification

Strazzera, Elisabetta (2006) Application of the ML Hausman approach to the demand of water for residential use: heterogeneity vs two-error specification. Working Paper. CRENoS.

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Official URL: http://www.crenos.it/working/pdf/06-04.pdf

Abstract

This paper presents an application of two ML models to the analysis of residential demand of water: the heterogeneity and the two-error model, both apt to model demand in presence of a kinked budget constraint. The heterogeneity model is especially suitable when the distribution is characterized by a strong clustering around the kinks. Since in practice observations can be very close, but not exactly at the kink, its application may require the definition of an interval of data around the kink, so that the observations falling inside this interval are attributed to the kink. We propose a procedure, based upon the estimates obtained from the twoerror model, to define this interval. In this application we find that the heterogeneity model allows to obtain more efficient estimates than the two-error model for the parameter of principal interest, i.e. the coefficient of the price variable.

Item Type:Technical Report / Working Paper / Project Report (Working Paper)
Publisher:CRENoS
Date:April 2006
Institution:Universita' degli Studi di Cagliari
Divisions:Centri > CRENoS Centro Ricerche Economiche Nord Sud
Subjects:Area 13 - Scienze economiche e statistiche > SECS-P/06 Economia applicata
Uncontrolled Keywords:Water Demand, Block Pricing, Kinked Budget, Constraint, Maximum Likelihood, Discrete-Continuous Choice, Hausman Model
ID Code:219
Deposited On:10 Nov 2008 08:25

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