Academic journal article The European Journal of Comparative Economics

Informing Water Policies with a Residential Water Demand Function: The Case of Serbia

Academic journal article The European Journal of Comparative Economics

Informing Water Policies with a Residential Water Demand Function: The Case of Serbia

Article excerpt

1. Introduction

Serbia is considered as a moderately water-poor country (Todic and Vukasovic, 2009). This has led the European Environmental Agency to qualify water resources in Serbia as being insufficient. (5) The water availability issue is worsened by an unequal distribution of resources over space, as well as by differences in water quality across the Serbian territory. The most populated lowland regions have limited water resources (6), while high quality water resources are mostly located along the country's perimeter. As a result, 84% of available water in Serbia originates outside the territory (Kastelan-Macan et al., 2007).

These considerations on low water availability call for an efficient management of water resources in Serbia. As a result, substantial legislative efforts have been undertaken by Serbia for securing water resources and developing water protection in the last decade. The Law on Environment Protection passed in 2004 (7) and the Law on Waters adopted in 2010 (8) constitute two examples of legal frameworks passed in this field. Despite these noticeable efforts, Serbia still faces some difficulties to achieve compliance with the main pollution control requirements specified in European Directives (Republic of Serbia, 2011). This noncompliance also results in failures to achieve the environmental objectives of the Water Framework Directive. (9) The same document recognizes nevertheless a reasonable level of compliance with the requirements of the Drinking Water Directive in most areas, although some serious problems of arsenic contamination have been noticed in some parts of Vojvodina.

An efficient management of water resources requires a good understanding of water demands for all users (Renzetti, 2002). Demand-side water management has become now a crucial activity of water sector regulation in most of the countries. (10) More generally, water demand modelling has been shown to be a valid approach to examine the sensitivity of water consumption to weather and climate (Balling and Cubaque, 2009), or to understand how consumers may react, in the short-term or in the long-run, to changes in water pricing (Martinez-Espineira, 2007). It has also been used to compute consumer's welfare changes for different types of water management policies (Garcia and Reynaud, 2004).

Surprisingly, and to our best knowledge, no estimate of the residential water demand function in Serbia has been published. (11) Our current work aims at filling this gap by providing the first estimate of the residential water demand function in Serbia. Providing some estimates of the price elasticity for the residential water demand in Serbia is relevant for a policy perspective. Indeed, one may expect in the future an increase in water prices in Serbia for several reasons. First, compared to similar countries, water prices in Serbia are quite low. (12) Second, according to the National Environmental Approximation Strategy for the Republic of Serbia, massive investments are expected to be realized by water utilities since much of the water supply and wastewater infrastructures have not been well maintained over the last decades (Topalovic et al., 2012). Third, still according to the same report, many public utility companies do not achieve cost recovery for the water services they provide, partly as a result of the relatively low tariffs they charge and partly because of lower than optimal scales of operation. (13) Our estimates of the Serbian residential water demand may then be used to assess how households will adjust their water consumption following the expected water price increases. Welfare implications could also be derived and used by public authorities in a cost/benefit perspective.

The remainder of this article is organized as follows. Section 2 exposes the material and the methods, and we provide an estimate of the Serbian residential water demand in Section 3. Policy implications are discussed in Section 4. …

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