Environmental externalities and free-riding in the household

B. Kelsey Jack, Seema Jayachandran, Flavio Malagutti and Sarojini Rao

Journal of Development Economics, 2024, vol. 170, issue C

Abstract: In addition to generating a negative environmental externality, a household’s water consumption entails another “market failure”: household members free-ride off each other and overconsume. The problem stems from consumption being billed at the household level and the difficulty of monitoring one another’s consumption. We document the importance of this phenomenon in urban Zambia by combining utility billing records and randomized person-specific price variation. We derive and empirically confirm the following prediction: Individuals with weaker incentives to conserve under the household’s financial arrangements reduce water use more when their person-specific price increases. Another prediction is that this overconsumption problem is more acute when the financial benefit of a lower utility bill is shared unevenly among household members. We show that households indeed seem more responsive to a change in the household-level price of water when their financial arrangements are more equal. Our results offer a novel explanation for the low price sensitivity of residential water (and electricity) consumption.

Keywords: Water use; Utility bills; Intrahousehold efficiency; Tragedy of the commons (search for similar items in EconPapers)
JEL-codes: D10 H21 H23 O10 Q56 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: Environmental Externalities and Free-Riding in the Household (2023)
Working Paper: Environmental externalities and free-riding in the household (2018)
Working Paper: Environmental Externalities and Free-riding in the Household (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:170:y:2024:i:c:s0304387824000439

DOI: 10.1016/j.jdeveco.2024.103294

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