The paper evaluates welfare losses from urban water supply disruptions for a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. The analysis accounts for the fact that most water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We estimate utility-specific price elasticities for use in the welfare analysis, which are derived from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual disruption range from an average of 1,458 per acre−foot of shortage to 3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness to pay to avoid an annual disruption of approximately 60–60–600 depending on the shortage size and location.
by Steven Buck, Maximilian Auffhammer, Stephen Hamilton, and David Sunding
Journal of the Association of Environmental and Resource Economists via University of Chicago Press Journals
Volume 3, Number 3; September, 2016; Online: July 27, 2016Keywords: California, Demand estimation, Residential water, Water shortage.