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Comparing Price and Non-price Approaches to Urban Water Conservation

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Author Info
Olmstead, Sheila M. ()
Stavins, Robert N.

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Abstract

Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of marketbased and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs, similar to results for pollution control in earlier decades. Price-based approaches also have advantages in terms of monitoring and enforcement. In terms of predictability and equity, neither policy instrument has an inherent advantage over the other. As in any policy context, political considerations are important.

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Paper provided by Resources For the Future in its series Discussion Papers with number dp-08-22.

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Date of creation: 15 Jun 2008
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Handle: RePEc:rff:dpaper:dp-08-22

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Related research
Keywords: cost-effectiveness; water conservation; market-based approaches; policy instrument choice; water price;

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Find related papers by JEL classification:
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
L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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  1. M. L. Weitzman, 1973. "Prices vs. Quantities," Working papers 106, Massachusetts Institute of Technology (MIT), Department of Economics.
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  2. Renwick, Mary E. & Green, Richard D., 2000. "Do Residential Water Demand Side Management Policies Measure Up? An Analysis of Eight California Water Agencies," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 37-55, July. [Downloadable!] (restricted)
  3. Erin T. Mansur & Sheila M. Olmstead, 2007. "The Value of Scarce Water: Measuring the Inefficiency of Municipal Regulations," NBER Working Papers 13513, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Hugh Sibly, 2006. "Efficient Urban Water Pricing," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 39(2), pages 227-237, 06. [Downloadable!] (restricted)
  5. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308. [Downloadable!] (restricted)
  6. Montgomery, W. David, 1972. "Markets in licenses and efficient pollution control programs," Journal of Economic Theory, Elsevier, vol. 5(3), pages 395-418, December. [Downloadable!] (restricted)
  7. Mary E. Renwick & Sandra O. Archibald, 1998. "Demand Side Management Policies for Residential Water Use: Who Bears the Conservation Burden?," Land Economics, University of Wisconsin Press, vol. 74(3), pages 343-359. [Downloadable!] (restricted)
  8. Stavins, Robert & Newell, Richard, 2000. "Cost Heterogeneity and the Potential Savings from Market-Based Policies," Discussion Papers dp-00-10-rev, Resources For the Future. [Downloadable!]
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  9. S. Gaudin, 2006. "Effect of price information on residential water demand," Applied Economics, Taylor and Francis Journals, vol. 38(4), pages 383-393, March. [Downloadable!] (restricted)
  10. Donna Brennan & Sorada Tapsuwan & Gordon Ingram, 2007. "The welfare costs of urban outdoor water restrictions," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society and Blackwell Publishing Asia Pty Ltd., vol. 51(3), pages 243-261, 09. [Downloadable!] (restricted)
  11. Parry, Ian W. H. & Bento, Antonio, 2002. "Estimating the Welfare Effect of Congestion Taxes: The Critical Importance of Other Distortions within the Transport System," Journal of Urban Economics, Elsevier, vol. 51(2), pages 339-365, March. [Downloadable!] (restricted)
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  12. 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)
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  13. Stavins, Robert, 1998. "Market-Based Environmental Policies," Discussion Papers dp-98-26, Resources For the Future. [Downloadable!]
  14. Renzetti, Steven, 1992. "Evaluating the welfare effects of reforming municipal water prices," Journal of Environmental Economics and Management, Elsevier, vol. 22(2), pages 147-163, March. [Downloadable!] (restricted)
  15. Krause, Kate & Chermak, Janie M & Brookshire, David S, 2003. "The Demand for Water: Consumer Response to Scarcity," Journal of Regulatory Economics, Springer, vol. 23(2), pages 167-91, March. [Downloadable!] (restricted)
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