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The Demand for Water: Consumer Response to Scarcity

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Abstract

Provision of water raises several issues for municipal utility companies and other suppliers, including reliability of supply in arid regions or during droughts, equity issues that arise because water is literally a necessity, and heterogeneity in consumer response to regulatory policy. We combine experimental and survey responses to investigate demand for water. The experiments simulate water consumption from a potentially exhaustible source, revealing heterogeneous demand for water. We estimate econometrically water demand for different consumer groups. A regulator could use estimates of disaggregated demand to attain conservation goals by designing an incentive compatible pricing system. The example given achieves a conservation goal while minimizing enforcement costs and welfare loss.

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Authors and Affiliations

  1. Department of Economics, University of New Mexico, 1915 Roma NE/Economics Bldg., Albuquerque, NM, 87131-1101

    Kate Krause, Janie M. Chermak & David S. Brookshire

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  1. Kate Krause
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  2. Janie M. Chermak
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  3. David S. Brookshire
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Correspondence to Kate Krause.

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Krause, K., Chermak, J.M. & Brookshire, D.S. The Demand for Water: Consumer Response to Scarcity. Journal of Regulatory Economics 23, 167–191 (2003). https://doi.org/10.1023/A:1022207030378

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