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This paper examines urban residential water demand for the city of Zahedan in Iran using the data over the period 1999 – 2006. The continuously intensifying scarcity of water resources is a crucial problem in almost all contemporary societies. Even in areas where there are adequate quantities of water. The problem of scarcity is usually confronted through the deterioration of water quality resulting in increasing costs for certain water uses. In the framework of water demand, it is vital to analyze and understand the characteristics of water demand. There are several important questions that need to answer. They are as follows: How the demand is formulated? Which factors determine the demand? How the demand responds to the changes in income and the cost of water? Stone-Gray approach is used to model and answer the above questions. The results show that the main determinants of residential water demand comprise water price, income, and temperature. The price elasticity of demand equals –0.06 while the income elasticity equals 0.062. Finally, the findings confirm that the minimum water requirements are 95 liters per person per day.

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In this paper, we try to analyze the impacts of targeted subsidies plan and socioeconomic variables on demand for residential water of Iranian urban households. For this purpose, we use pooled data of 146729 urban households during 2007-2014 and estimate an Almost Ideal Demand System (AIDS) model using Seemingly Unrelated Regression (SUR).  The results show that targeted subsidies plan has no significant effect on demand for urban residential water. The price and income elasticity’s of demand for residential water were estimated by -0.94 and 0.64, respectively. We also show that the household size and gender of household’s head are of positive and significant effects on residential water consumption, while literacy rate of household’s head and use of cloth washing machine affect negatively the demand for water. In addition, using dishwashing machine and size of household’s dwelling have no significant effects on residential water consumption.