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

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.
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About the Project

The goal of this project is to shed light on the relationship between economic activity and the environment by exploring the linkages between changes in our natural capital and our measures of productivity generally, and through the construction of an environmentally adjusted measure of productivity specifically.

While it is now commonly accepted that economic activity and the state of our environment are linked, many economic measures still fail to incorporate the environment – both the things we draw from it and the pollution we release into it. By developing and calculating measures of productivity that include natural capital, Canada may be able to better understand these linkages. This, in turn, may lead to the identification of strategies that can help Canada become more efficient and innovative in the use and protection of natural capital, and thus more productive and more prosperous.

Using the forestry sector as a case study, this project aims to construct an environmentally adjusted measure of multifactor productivity. In doing so, we aim to add another layer of understanding to the environmental and economic performance of this sector. The proposed measure will have relevance to the Canadian economy as a whole.