Abstract

We present the first study that examines the effects of publication selection in the literature estimating the income elasticity of water demand. Paradoxically, more affected by publication selection are the otherwise preferable estimates that control for the endogeneity. Because such estimates tend to be smaller and less precise, they are often statistically insignificant, which leads to more intense specification searching and bias. Attempting to correct simultaneously for publication and endogeneity biases, we find that the mean underlying elasticity is approximately 0.15 or less. The result is robust to controlling for 30 other characteristics of the estimates and using Bayesian model averaging to account for model uncertainty. The differences in the reported estimates are systematically driven by differences in the tariff structure, regional coverage, data granularity, and control for temperature in the demand equation.

Fig: Publication Selection Creates and Upward Bias in the Literature

Funnel plot


Reference: Tomas Havranek, Zuzana Irsova, and Tomas Vlach (2017), "Measuring the Income Elasticity of Water Demand: The Importance of Publication and Endogeneity Biases." IES Working Paper 2/2017, Charles University, Prague.