WASHINGTON—A new study posted by Resources for the Future (RFF) finds that jurisdictions needing to conserve water may be better served by prescriptive restrictions than by pricing incentives.
California Governor Jerry Brown, in response to the state’s serious drought, has mandated a 25 percent reduction in urban potable water. California’s plan allows for a mix of pricing and prescriptive restrictions. But scant evidence existed on the relative merits of either approach, a fact particularly true at the household level.
In a new RFF discussion paper, out today, Conservation Policies: Who Responds to Price and Who Responds to Prescription?, RFF Fellow Casey J. Wichman and Laura O. Taylor and Roger H. von Haefen of North Carolina State University analyze a rich dataset of monthly water consumption for 1,727 detached, single-family households in six municipalities in North Carolina. The study covers a two-and-a-half year period that included one of the most severe droughts in the state’s history.
The results indicate that mandatory prescriptive policies focused on outdoor watering restrictions achieved approximately a 13 percent reduction in aggregate demand. To achieve the same reduction in consumption, a more than 50 percent increase in average water prices would be needed. A price increase of this magnitude would raise annual water expenditures by $330 for the average household in the study (in 2006 dollars).
Additionally, results suggest that lower-income households are more sensitive to price, while non-price restrictions affect income classes similarly. The authors’ estimates imply that high-income households are significantly less responsive to price, and households with in-ground irrigation systems are essentially unresponsive to the price changes that occurred during the sample period. Furthermore, households with irrigation systems and other "high-use” households are found to be nearly twice as responsive to mandatory policies as other households.
Read a new blog post on the issue covering the authors’ key findings, by RFF Fellow Casey J. Wichman: Effective Water Demand Management: Prices vs. Restrictions.
* * * * * * * *Resources for the Future (RFF) is an independent, nonpartisan organization based in Washington, DC, that conducts rigorous economic research and analysis to improve environmental and natural resource policy.