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Conservation Policies: Who Responds to Price and Who Responds to Prescription?

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  • Wichman, Casey J.

    () (Resources for the Future)

  • Taylor, Laura O.
  • von Haefen, Roger H.

Abstract

Although prescriptive policies are commonly employed by resource managers to encourage conservation, economists tend to advocate for pricing mechanisms on efficiency grounds. However, many environmental management contexts involve resources whose prices are regulated by utility commissions or federal oversight. As such, the use of pricing tools to encourage conservation is politically challenging. This is particularly true with water resource management. Efficiency would dictate that price should reflect long-run marginal cost of provision, including scarcity rents, which is typically greater than regulated market prices (Mansur and Olmstead 2012). As such, nonprice strategies, also referred to as prescriptive policies, have become popular demand management tools for water conservation during periods of drought when the short-run reliability of water resource systems is at risk. These strategies can take the form of restrictions on outdoor water use (Castledine et al. 2014; Renwick and Green 2000), information campaigns (Coleman 1999), social comparisons (Ferraro and Price 2013), or financial incentives for technology adoption (Bennear et al. 2013; Renwick and Archibald 1998). A noteworthy case where nonprice (and to a lesser degree, price) policies have been adopted to reduce water consumption is that of California, where Governor Jerry Brown recently issued an executive order that mandates a 25 percent reduction in urban potable water use to combat the ongoing statewide drought.

Suggested Citation

  • Wichman, Casey J. & Taylor, Laura O. & von Haefen, Roger H., 2016. "Conservation Policies: Who Responds to Price and Who Responds to Prescription?," Discussion Papers dp-16-10, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-16-10
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    References listed on IDEAS

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    Cited by:

    1. Wichman, Casey J., 2014. "Perceived price in residential water demand: Evidence from a natural experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PA), pages 308-323.
    2. Wichman, Casey J., 2017. "Information provision and consumer behavior: A natural experiment in billing frequency," Journal of Public Economics, Elsevier, vol. 152(C), pages 13-33.
    3. J. Scott Holladay & Jacob LaRiviere & David M. Novgorodsky & Michael Price, 2016. "Asymmetric Effects of Non-Pecuniary Signals on Search and Purchase Behavior for Energy-Efficient Durable Goods," NBER Working Papers 22939, National Bureau of Economic Research, Inc.
    4. Wichman, Casey J. & Ferraro, Paul J., 2017. "A cautionary tale on using panel data estimators to measure program impacts," Economics Letters, Elsevier, vol. 151(C), pages 82-90.

    More about this item

    Keywords

    water demand; nonprice policies; price regulation; conservation; drought;

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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