The Effects of Policy Announcement, Prices, and Subsidies on Water Consumption

Abstract

With increasing water security challenges, water utilities around the world face complex decisions on water supply and demand management. This study investigates the effects of price and subsidy increases on water conservation in Singapore. Using anonymized monthly billing data on water consumption for 2.2 million residential accounts over 10 years, our difference-in-differences estimates show that the announcement of a two-phased 30% price increase reduces water consumption by 3.7% more for the public housing, relative to the private apartments. The announcement effect is larger than the implementation of price increase. Consumers with lower water usage respond more to the announcement of price hike while consumers with higher usage respond more to its implementation. An increase in utility subsidy reduces low-income households’ financial burden but does not affect water consumption possibly due to consumers’ low attentiveness to the subsidy change. The results suggest that the traditional market-based policy instruments, such as price and subsidy, could be combined with attention priming to achieve sustainable outcomes with minimal requirement on technology advancement and institutional innovation.

Keywords: Water price; utility subsidy; announcement effect; water conservation