Price Works: Seasonality and Determinants of Toronto's Amazing Decline in Water Demand

Abstract

Over the past eight years, the City of Toronto has experienced a dramatic drop in both its absolute and per capita water consumption rates. Water demand in Toronto has declined by 14% overall and by 24% on a per capita basis over the same period. At first glance, this appears to be a huge success for the City’s water conservation efforts. This study investigates the cause of the decline by exploiting two unique datasets to decompose the effects of weather and seasonal variation, infrastructure improvements and varying price structures. While seasonal variation and improvements in infrastructure jointly play a large role in determining short run water demand, this study finds that, even though consumers in the City of Toronto have inelastic demand curves, the majority of the decline in water consumption is attributable to the increasing price of water.