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Dominance of arid and semiarid climate in a vast area of Iran along with the water consumption growth necessitates a more sophisticated planning, a more efficient operation towards an optimal allocation and conservation of water resources in the country. In recent decades many countries, including Iran, have adopted increasing block tariffs for domestic water management. This policy is based on a progressive tariffs applied to control and manage the residential water consumption. In this paper, we developed a panel data model to investigate the impact of increasing block pricing on the residential water consumption during 2004-2008. The average and marginal price models of demand for residential water have been estimated to examine the effects of households’ income and the climate conditions on the residential water consumption. Results show that the increasing block pricing system has not efficiently controlled the residential water consumption in Iran.