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The Value of Scarce Water: Measuring the Inefficiency of Municipal Regulations

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Author Info
Erin T. Mansur
Sheila M. Olmstead

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Abstract

Rather than allowing water prices to reflect scarcity rents during periods of drought-induced excess demand, policy makers have mandated command-and-control approaches, like the curtailment of certain uses, primarily outdoor watering. Using unique panel data on residential end-uses of water, we examine the welfare implications of typical drought policies. Using price variation across and within markets, we identify end-use specific price elasticities. Our results suggest that current policies target water uses that households, themselves, are most willing to forgo. Nevertheless, we find that use restrictions have costly welfare implications, primarily due to household heterogeneity in willingness-to-pay for scarce water.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13513.

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Date of creation: Oct 2007
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Handle: RePEc:nbr:nberwo:13513

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Find related papers by JEL classification:
L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olmstead, Sheila & Stavins, Robert, 2008. "Comparing Price and Non-Price Approaches to Urban Water Conservation," Working Paper Series rwp08-034, Harvard University, John F. Kennedy School of Government. [Downloadable!]
    Other versions:
  2. Nauges, Celine & van den Berg, Caroline, 2006. "Water markets, demand, and cost recovery for piped water supply services : evidence from Southwest Sri Lanka," Policy Research Working Paper Series 3941, The World Bank. [Downloadable!]
  3. Sheila Olmstead & W. Michael Hanemann & Robert N. Stavins, 2007. "Water Demand Under Alternative Price Structures," NBER Working Papers 13573, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Simon Cowan, 2006. "The welfare economics of optional water metering with asymmetric information," Economics Series Working Papers 273, University of Oxford, Department of Economics. [Downloadable!]
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