The Value of Scarce Water: Measuring the Inefficiency of Municipal Regulations

43 Pages Posted: 13 Jan 2006  

Erin T. Mansur

Tuck School of Business at Dartmouth; National Bureau of Economic Research (NBER)

Sheila M. Olmstead

LBJ School of Public Affairs; Resources for the Future

Multiple version iconThere are 2 versions of this paper

Date Written: January 2006

Abstract

Rather than allowing water prices to reflect scarcity rents during periods of drought-induced excess demand, policy makers have mandated command-and-control approaches, like the curtailment of certain uses, primarily outdoor watering. Using unique panel data on residential end-uses of water, we examine the welfare implications of typical drought policies. Using price variation across and within markets, we identify end-use specific price elasticities. Our results suggest that current policies target water uses that households, themselves, are most willing to forgo. Nevertheless, we find that use restrictions have costly welfare implications, primarily due to household heterogeneity in willingness-to-pay for scarce water.

Keywords: Resource Allocation, Market-based Regulation, Residential Water Demand, Drought Policy

JEL Classification: I30, D10

Suggested Citation

Mansur, Erin T. and Olmstead, Sheila M., The Value of Scarce Water: Measuring the Inefficiency of Municipal Regulations (January 2006). AEI-Brookings Joint Center Working Paper No. 06-01. Available at SSRN: https://ssrn.com/abstract=875439 or http://dx.doi.org/10.2139/ssrn.875439

Erin T. Mansur (Contact Author)

Tuck School of Business at Dartmouth ( email )

Hanover, NH 03755
United States
603 646 2398 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
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Sheila M. Olmstead

LBJ School of Public Affairs ( email )

2300 Red River St., Stop E2700
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Austin, TX 78713
United States
512-471-2064 (Phone)

Resources for the Future ( email )

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Washington, DC 20036
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512-471-2064 (Phone)

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