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Water Conservation Policy

Paper Session

Friday, Jan. 4, 2019 2:30 PM - 4:30 PM

Atlanta Marriott Marquis, A701
Hosted By: Association of Environmental and Resource Economists
  • Chair: Laura Grant, Claremont McKenna College

Determinants of Water Conservation: Evidence from the Recent California Drought

Oliver Roman Browne
University of Chicago
Ludovica Gazze
University of Chicago
Michael Greenstone
University of Chicago


Managing demand for residential water use is increasingly important in light of increased climate
variability, growing population, depleted groundwater, and the high costs of developing new supply.
During the recent 2012-2016 drought in California, many utilities achieved state-mandated goals to
reduce their residential water use by over 25%, representing a huge public policy success. However, it is
unclear which particular policies drove this conservation. This paper seeks to disentangle the impacts
different state and municipal policies had on residential water use. We use hourly micro-data from over
86,000 single family households between 2013 and 2016 in a large Californian city.
First, we find that a 10% increase in marginal rates is associated with a decrease in use of 20
gallons/day. Over our sample period, rate changes are responsible for saving 25 gallons/day. Second,
reducing the number of days households are allowed to use water outdoors results in households
substituting water use from banned to non-banned days. However, water use persistently decreases by
6% (30 gal/day) after this policy change, specifically during hours when outdoor use was never
permitted, suggesting households may be reacting to the announcement of the change. Consistently,
water use declines by 74 and 44 gallons/day after the announcement of “State of Emergency” and
“Mandatory 25% Water Use Reductions,” respectively. Indeed, these major state-level announcements
appear to induce interest in the drought, as measured by Google searches. A mediation analysis shows
that our measure of drought awareness is highly correlated with water use, but, after controlling for city
and state policies, this correlation disappears. Finally, while we see large savings (55 gallons/day) from
toilet and lawn rebates, total impacts are negligible due to low-take up rates.

Exposure-Enhanced Goods and Technology Disadoption: Evidence from a Randomized Controlled Trial with Resource-Conserving Technologies

Paul Ferraro
Johns Hopkins University
Francisco Alpizar
Tropical Agricultural Research and Higher Education Center (CATIE)
Maria Bernedo
University of Maryland-Baltimore County
Ben Meiselman
Johns Hopkins University


Pro‐environmental technologies are widely promoted for conserving resources and mitigating negative
externalities. However, the impacts from their adoption will be blunted if they are subsequently
disadopted. Disadoption is a problem in many environmental contexts (e.g., agriculture, energy and
water efficiency, cook stoves, sanitation). Yet in comparison to the myriad studies exploring the
mechanisms by which firms and consumers adopt technologies, much less theoretical and empirical
attention has been paid to the process of disadoption.
We focus on a mechanism that may contribute to disadoption and can be directly influenced by policy
interventions. We posit that the perceived net benefits from some technologies are enhanced by
exposure to the technologies. Exposure affects adopters’ perceived net benefits through habit
formation, learning‐by‐doing, or consumption experience (for experience goods). These mechanisms
have been extensively studied in separate literatures, but all have the same implication: exposure to a
technology can increase the perceived benefits or decrease the perceived costs of use, which implies
that the longer adopters are exposed to a technology, the less likely they are to disadopt it.
We present a unified conceptual framework for exposure‐enhanced goods and test whether short‐term
cash incentives that increase exposure to such goods are effective at reducing longer‐term disadoption.
In a randomized controlled trial in rural Costa Rica that assigned water‐efficient technologies to nearly
one thousand households, some households were offered a cash bonus if, during an unannounced audit
four to six months later, they were still using the technologies. Studying the effect of exposure on
disadoption is typically complicated by endogeneity, but the randomized bonus provides an exogenous
shock to short‐term exposure. A year after the bonus was discontinued, disadoption rates were
measured again in a surprise audit. Consistent with the hypothesized mechanisms for disadoption of
exposure‐enhanced goods, longer exposure induced by the bonus reduced disadoption.

Spatial Externalities in Groundwater Extraction: Evidence from California Agriculture

Fiona Burlig
University of Chicago
Louis Preonas
University of California-Berkeley
Matthew Woerman
University of California-Berkeley


Groundwater is a common-pool resource essential for agricultural production. When farmers extract a marginal unit of groundwater, this lowers nearby groundwater levels and increases their neighbors' groundwater pumping costs. This paper estimates farmers' elasticity of demand for groundwater, in order to empirically investigate the magnitude of this spatial "pumping cost" externality. We assemble a novel dataset that combines (i) detailed microdata on farmers’ electricity consumption, (ii) rich data from technical audits of these farmers' pump efficiencies, and (iii) publicly available measurements of groundwater depths in California aquifers. Using exogenous variation in electricity prices, we estimate farmers' price elasticities of demand for both electricity (−1.17) and groundwater (−1.12) to be much larger than previous estimates in the literature. We then calculate the extent to which each farm lowers its neighbors' economic surplus by removing water from their shared aquifer. Our preliminary results suggest that the magnitude of the "pumping cost" externality is likely smaller than farmers' private costs of groundwater pumping.

Do behavioral nudges interact with prevailing economic incentives? Pairing experimental and quasi-experimental evidence from water consumption

Daniel Brent
Pennsylvania State University
Casey Wichman
Resources for the Future


Social comparisons are a popular behavioral nudge to promote conservation of energy and water, partially because raising prices is politically difficult. Nudges may interact with prevailing prices, however, potentially crowding out intrinsic motivation to conserve or by increasing the salience of prices. We investigate the interaction of prices and nudges in two experiments in neighboring water utilities. First, we layer randomized behavioral treatments on top of variation in price driven by arbitrary lot-size thresholds that assign marginal prices to customers exogenously. Second, we explore whether behavioral treatments affect consumers’ price sensitivity. We find no consistent evidence that social comparisons are more effective at inducing conservation at higher prices or increase consumers’ price sensitivity. Ultimately, we find little empirical support that consumers respond to behavioral treatments due to private economic benefits.
Laura Grant
Claremont McKenna College
Nick Magnan
University of Georgia
Katrina Jessoe
University of California-Davis
Michael Price
University of Alabama
JEL Classifications
  • Q2 - Renewable Resources and Conservation
  • D9 - Micro-Based Behavioral Economics