This study investigates the water demand of Indian manufacturing plants. It adopts an input distance function approach and approximates it by a translog form. Duality between cost function and input distance function is exploited to retrieve information concerning substitutability and the shadow price of water. The model is estimated using a linear programming approach on a sample of 92 firms over three years. The results show that the average shadow price of water is 7.21 Rupees per kilolitre (Rupees/kl) and the price elasticity of derived demand for water is high, −1.11 on average, a value similar to that found by other researchers working in developing countries (for example, China and Brazil). This indicates that water charges may be an effective instrument for water conservation.

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