Chapter 7: Residential water management: an economic perspective on policy instruments
This chapter is about residential water management in developed economies. Our focus will be the USA. We consider what economic analysis can offer to help in addressing the challenges facing public agencies and private water providers that are responsible for serving residential customers. We are primarily interested in prescriptive analysis, asking a variety of questions about the roles for economic policy instruments. To many economists, price would seem the most obvious starting point for any discussion of water management. It is not the only instrument and often, due to concerns about assuring affordable access to all residential customers, alternatives are preferred by water managers. Voluntary appeals for conservation in times of drought, restrictions on external water use for landscape, incentive programs to replace old water-using appliances and information programs seem to have been preferred over significant changes to pre-existing price structures. We begin our discussion with what we know about demand responses to prices and then discuss some aspects of the performance of other instruments. After this general discussion we describe how price elasticities estimates could be used in evaluating conservation policies that are associated with both price and non-price instruments. The context for our discussion is the growing policy concerns about the water available for household consumption, as well as for other uses, including agriculture, industry and natural ecosystems.
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