Does water utilities ownership affect water consumption in Italy? An empirical analysis of the determinants of water demand

The management of domestic water demand is a relevant issue to enhance the sustainable approach to water resources, since it may help to reduce water shortages and make less necessary the construction of large infrastructures. A deep knowledge of the consumption behavior of household users is crucial for policy makers and utilities’ managers to draw policies and strategies that could contribute to eliminate unnecessary consumption. The aim of this study is to estimate the determinants of residential water demand for chief towns of every Italian province in the period 2007-2009, by using the linear mixed effects model estimated with restricted maximum likelihood method. The dataset includes also water utilities’ ownership, a variable that until now has received scant attention in the existing literature on water consumption. Results suggest at least three policies that national and local authorities may consider to induce more sustainable behaviors. First, the tariff is confirmed to be a relevant factor affecting water consumption, able to reduce water residential consumption, even if existing literature has shown that short-run elasticity is smaller than long-run elasticity, price elasticity is generally smaller for higher income countries and there is an amount of water that is highly insensitive to price changes. Second, the outcomes related to climate and geographical features should induce managers and politics to have ad hoc behaviors, investing more in information campaigns in dry and drought areas, or promoting incentives for the implementation of high-efficiency household appliances in the plain areas. Finally, our outcomes demonstrate that in Italy there is room to extend water conservation policies aimed to save water and conserve the environment. These opportunities should be gathered in particular by publicly owned water utilities, that are more than half of the firms that manage the water service in chief towns of Italian provinces: as a matter of fact, surprisingly, if tariff s is not considered, residential water consumption is found to be significantly higher in towns where the water service is managed by publicly owned water utilities. In these utilities shareholders are one or more municipalities or provinces, public entities that should have the same interest of community, customers, and environment: to spread sustainable approach to water consumption and reduce the current pressures on European water resources.