By Christopher Deranian, University of Maryland, College Park
Over the past two decades, drought conditions in California have repeatedly threatened freshwater security in the state. Since Governor Jerry Brown declared a state of emergency in 2014, a variety of policies have been enacted to promote water conservation. However, raising the price of residential water is illegal under proposition 218, leaving non-price policies such as restrictions, rebates and information campaigns responsible for water reduction. This paper uses fixed effects and difference-in-differences models to estimate the impact of both price and non-price incentives on the demand for residential water in California, and how they may impact California’s goal to reduce water usage by 25% statewide. This analysis finds that non-price policies in the San Francisco Bay Area result in a 16% to 27% reduction in demand, with a price elasticity of -0.133, less than that of previous studies. These results are statistically significant.
Read the full paper here.