Can Allocation-Based Water Rates Promote Conservation and Increase Welfare? A California Case Study

Kenneth A. Baerenklau and María Pérez-Urdiales
Additional contact information
Kenneth A. Baerenklau: School of Public Policy, 900 University Ave., University of California, Riverside, CA 92521, USA

Water Economics and Policy (WEP), 2019, vol. 05, issue 02, 1-26

Abstract: An allocation-based rate (ABR) is a special type of increasing block rate (IBR) price structure that is receiving increased attention from urban water suppliers in places like California where population growth and climate change continue to increase water scarcity. Previous work by Baerenklau et al. [Baerenklau, KA, KA Schwabe and A Dinar (2014a). Allocation-based water pricing promotes conservation while keeping user costs low. Agricultural and Resource Economics Update, 17(6), 1–14; Baerenklau, KA, KA Schwabe and A Dinar (2014b). The residential water demand effect of increasing block rate water budgets. Land Economics, 90(4), 683–699.] investigates the conservation potential of ABR and finds that consumption under ABR was 10–15% below that of a comparable uniform rate structure for a southern California case study. This paper extends that work by using the discrete–continuous choice framework to estimate household-level welfare effects of ABR for the same dataset. We find that despite the observed decrease in consumption, average household welfare actually increased under ABR due to its non-linear structure. We also find that similar results would have been achievable with a simpler standard IBR structure. While either of these block rate structures is welfare-preferred to uniform price and quantity instruments, neither clearly dominates the other.

Keywords: Discrete–continuous choice model; non-linear pricing; allocation-based rates; increasing block rates; welfare estimation; water demand; water conservation; water scarcity (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S2382624X18500145
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:wepxxx:v:05:y:2019:i:02:n:s2382624x18500145

Ordering information: This journal article can be ordered from

DOI: 10.1142/S2382624X18500145

Access Statistics for this article

Water Economics and Policy (WEP) is currently edited by Ariel Dinar

More articles in Water Economics and Policy (WEP) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().