Water conservation and the common pool problem: Can pricing address free-riding in residential hot water consumption?

Mikael Elinder (), Xiao Hu () and Che-Yuan Liang
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Mikael Elinder: Department of Economics at Uppsala University, and Research Institute of Industrial Economics (IFN)
Xiao Hu: CERE - the Center for Environmental and Resource Economics

No 2021:12, CERE Working Papers from CERE - the Center for Environmental and Resource Economics

Abstract: Water is an increasingly scarce resource. It is often distributed such that consumers do not face any marginal cost of consumption, creating a common pool problem. For instance, tenants in multi-family buildings can often consume both hot and cold water at zero marginal cost. Using high-frequency data over many years, we analyze how the introduction of apartment-level metering and billing (IMB) affects hot water consumption. We find that introducing a marginal cost, reflecting the market price, decreases consumption drastically by 26%. Hence, price interventions can curb free-riding behavior and help the conservation of cheap but precious resources. Our results also show that heavy water users in the top consumption quartile account for 72% of the reduction. Moreover, cost-benefit calculations indicate that IMB for hot water is a cost-effective policy tool for reducing water and energy consumption.

Keywords: Residential water consumption; water conservation; common pool problem; free-riding; individual metering and billing (search for similar items in EconPapers)
JEL-codes: D12 Q21 Q25 Q28 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2021-10-04
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Citations: View citations in EconPapers (1)

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Working Paper: Water Conservation and the Common Pool Problem: Can Pricing Address Free-Riding in Residential Hot Water Consumption? (2021)
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