BLOG: How Price and Non-Price Incentives Affect California Water Demand

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.

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