Drivers of Price and Nonprice Water Conservation by Urban and Rural Water Utilities: An Application of Predictive Models to Four Southern States

By Boyer, Christopher N.; Adams, Damian C. et al. | Journal of Agricultural and Applied Economics, February 2014 | Go to article overview

Drivers of Price and Nonprice Water Conservation by Urban and Rural Water Utilities: An Application of Predictive Models to Four Southern States


Boyer, Christopher N., Adams, Damian C., Borisova, Tatiana, Journal of Agricultural and Applied Economics


This study examines water system characteristics, managers' attitudes and perceptions toward water conservation, and future planning strategies that influence the adoption of water conservation programs for urban and rural communities. We surveyed water system managers in Oklahoma, Arkansas, Tennessee, and Florida; and we parameterized predictive adoption models for price-based (PC) and nonprice-based (NPC) conservation programs. Notably, results suggest that information about the price elasticity of water demand for a community does encourage PC and NPC adoption; and we found no evidence that PC and NPC adoption is jointly considered by water systems.

Key Words: predictive models, southern US, water conservation, water system managers

JEL Classifications: Q24, Q30, Q50

(ProQuest: ... denotes formulae omitted.)

Water systems in the southern United States are confronting periodic water shortages caused by droughts, population growth, and diminishing access to traditional supply sources (Council for Agricultural Science and Technology, 2009; Kenny et al., 2009; McNulty et al., 2008; Seager, Tzanova, and Nakamura, 2009). It is anticipated that the region's water demand will continue to increase, putting additional pressure on con- strained water supplies (Elcock, 2010). Histori- cally, water supply capital investment projects such as new reservoirs were the solution to meeting growing water demands (Kenney et al., 2008). However, these projects can be extremely costly, take several years to complete, and in- creasingly run afoul of state and federal envi- ronmental regulations (Gleick, 2000). For these reasons, some recent major water projects in the United States are considered economically ''in- efficient'' (Olmstead, 2010). That is, additional water from these sources is relatively expensive compared with other approaches to dealing with water shortages. An alternative approach to dealing with water shortages is to implement water conservation programs that are aimed at reducing per-capita water use (Gleick, 2003; Kenney et al., 2008). Recently, southern US states began using water conservation programs to manage water supplies (Mullen, 2011).

Water conservation programs are often clas- sified into price conservation (PC) and nonprice conservation (NPC) programs. PC programs use the increase in the price of water to create an incentive to reduce end-users' water consump- tion. Some examples of PC programs include an inclining block rate structure, seasonal pric- ing, excess use rate, indoor/outdoor rate, and scarcity pricing (Adams, Boyer, and Smolen, 2009; Vickers, 2001). On the other hand, NPC programs reduce end-users' water consumption or increase water use efficiency without chang- ing water prices. Several creative NPC programs have been developed such as rebates to purchase low-flow devices, outdoor watering restrictions, leak control, education/awareness, and retrofit- ting devices to replace less efficient water de- vices (Vickers, 2001).

Extant literature tends to focus on the effec- tiveness of water conservation programs at re- ducing water demand (e.g., Inman and Jeffrey, 2006; Olmstead and Stavins, 2009). Studies of PC programs usually involve the estimation of price elasticity of water demand before and after the implementation of a PC program. Effec- tiveness is measured by the percentage change in water use for the given percentage change, usually an increase, in the price of water (e.g., Brookshire et al., 2002; Dalhuisen et al., 2003; Espey, Espey, and Shaw, 1997). Meta-analyses by Brookshire et al. (2002) and Espey, Espey, and Shaw (1997) found that water use drops by roughly 0.5% after a 1% increase in water prices (Table 1), and Dalhuisen et al. (2003) found an average price elasticity of residential water de- mand of -0.41 (i.e., a 0.41% drop in water use for every 1% increase in water prices). Similarly, the effectiveness of NPC programs is usually measured by changes in water use after the implementation of the NPC program (e. …

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