Working Paper: NBER ID: w14147
Authors: Sheila M. Olmstead; Robert N. Stavins
Abstract: Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of market-based and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost-effective than implementing non-price conservation programs, similar to results for pollution control in earlier decades. Price-based approaches also have advantages in terms of monitoring and enforcement. In terms of predictability and equity, neither policy instrument has an inherent advantage over the other. As in any policy context, political considerations are important.
Keywords: No keywords provided
JEL Codes: L95; Q25; Q28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher prices (D49) | reduced water demand (Q25) |
| market-based approaches (D47) | cost-effectiveness (D61) |
| price elasticity (D12) | demand management (M11) |
| low-income households (R20) | larger demand response to price increases (R22) |
| price-based approaches (L11) | predictability of achieving conservation goals (Q26) |
| price increases (E30) | manage water demand effectively (Q25) |