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Comparing Price and Non-price Approaches to Urban Water Conservation

Author

Listed:
  • Sheila M. Olmstead

    (Yale School of Forestry and Environmental Studies)

  • Robert N. Stavins

    (Harvard University)

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 market-based 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.

Suggested Citation

  • Sheila M. Olmstead & Robert N. Stavins, 2008. "Comparing Price and Non-price Approaches to Urban Water Conservation," Working Papers 2008.66, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2008.66
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Cost-effectiveness; Water Conservation; Market-based Approaches; Policy Instrument Choice; Water Price;

    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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