Econometric Modeling and Analysis of Residential Water Demand Based on Unbalanced Panel Data

This paper develops an econometric methodology devised to analyze a sample of time unbalanced panel data on residential water consumption in the French island La Reunion with the purpose to bring out the main determinants of household water consumption and estimate the importance of water consumption by uses. For this purpose, we specify a daily panel econometric model and derive, by performing a time aggregation, a general linear regression model accounting for water consumption data recorded on periods of any calendar date and time length. To estimate efficiently the parameters of this model we develop a feasible two step generalized least square method. Using the principle of best linear unbiased prediction, we finally develop an approach allowing to consistently break down the volume of water consumption recorded on household water bills by uses, namely by enforcing this estimated decomposition to add up to the observed total. The application of this methodology to a sample of 437 unbalanced panel observations shows the scope of this approach for the empirical analysis of actual data.