Comparing Price and Non-Price Approaches to Urban Water Conservation

26 Pages Posted: 30 Jun 2008 Last revised: 27 Feb 2022

See all articles by Sheila M. Olmstead

Sheila M. Olmstead

LBJ School of Public Affairs; Resources for the Future

Robert N. Stavins

Harvard University - Harvard Kennedy School (HKS); Resources for the Future; National Bureau of Economic Research (NBER)

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Date Written: June 2008

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.

Suggested Citation

Olmstead, Sheila M. and Stavins, Robert N., Comparing Price and Non-Price Approaches to Urban Water Conservation (June 2008). NBER Working Paper No. w14147, Available at SSRN: https://ssrn.com/abstract=1152688

Sheila M. Olmstead

LBJ School of Public Affairs ( email )

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