Demand specification for municipal water management: Evaluation of the Stone-Geary form

To specify demand in most water allocation problems, researchers face a tradeoff bem,cen flexibility and parsimony. Flexible forms are less constraining on elasticity estimates, but require large parameter sets that tend to cause poor out-of-sample forecasts and computational difficulties. Using a five-year panel of Texas municipalities, the parsimonious Stone-Geary form yields estimated demand functions that arc comparable to flexible form results. The Stone-Geary specification also provides an estimate of the portion of water use that may not be responsive to price, and is useful in analysing price structures and designing conservation policies.