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Measuring Welfare Losses from Urban Water Supply Disruptions

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  • Steven Buck
  • Maximilian Auffhammer
  • Stephen Hamilton
  • David Sunding

Abstract

The paper evaluates welfare losses from urban water supply disruptions for a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. The analysis accounts for the fact that most water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We estimate utility-specific price elasticities for use in the welfare analysis, which are derived from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual disruption range from an average of $1,458 per acre-foot of shortage for a 10% supply disruption to an average of $3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness to pay to avoid an annual disruption of approximately $60–$600 depending on the shortage size and location.

Suggested Citation

  • Steven Buck & Maximilian Auffhammer & Stephen Hamilton & David Sunding, 2016. "Measuring Welfare Losses from Urban Water Supply Disruptions," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 743-778.
  • Handle: RePEc:ucp:jaerec:doi:10.1086/687761
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    References listed on IDEAS

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