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Chicago's water market: dynamics of demand, prices and scarcity rents

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  • Viju Ipe
  • Subhash Bhagwat

Abstract

Chicago and its suburbs are experiencing an increasing demand for water from a growing population and economy and may experience water scarcity in the near future. The Chicago metropolitan area has nearly depleted its groundwater resources to a point where interstate conflicts with Wisconsin could accompany an increased reliance on those sources. Further, the withdrawals from Lake Michigan is limited by the Supreme Court decree. The growing demand and indications of possible scarcity suggest a need to reexamine the pricing policies and the dynamics of demand. The study analyses the demand for water and develops estimates of scarcity rents for water in Chicago. The price and income elasticities computed at the means are -0.002 and 0.0002 respectively. The estimated scarcity rents ranges from $0.98 to $1.17 per thousand gallons. The results indicate that the current prices do not fully account for the scarcity rents and suggest a current rate with in the range $1.53 to $1.72 per thousand gallons.

Suggested Citation

  • Viju Ipe & Subhash Bhagwat, 2002. "Chicago's water market: dynamics of demand, prices and scarcity rents," Applied Economics, Taylor & Francis Journals, vol. 34(17), pages 2157-2163.
    • Handle: RePEc:taf:applec:v:34:y:2002:i:17:p:2157-2163
    DOI: 10.1080/00036840210138383
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    References listed on IDEAS

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    Cited by:

    1. Mark Hoffman & Andrew Worthington & Helen Higgs, 2005. "Modelling residential water demand with fixed volumetric charging in a large urban municipality: The case of Brisbane, Australia," School of Economics and Finance Discussion Papers and Working Papers Series 196, School of Economics and Finance, Queensland University of Technology.
    2. Antonio Musolesi & Mario Nosvelli, 2007. "Dynamics of residential water consumption in a panel of Italian municipalities," Applied Economics Letters, Taylor & Francis Journals, vol. 14(6), pages 441-444.
    3. Marcos García-López & Borja Montano & Joaquín Melgarejo, 2020. "Water Pricing Policy as Tool to Induce Efficiency in Water Resources Management," IJERPH, MDPI, vol. 17(10), pages 1-19, May.
    4. Hoffmann, Mark & Worthington, Andrew & Higgs, Helen, 2006. "Urban water demand with fixed volumetric charging in a large municipality: the case of Brisbane, Australia," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 50(3), pages 1-13, September.
    5. García-López, Marcos & Montano, Borja & Melgarejo, Joaquín, 2022. "Alternative tariff structures and household composition: Evidence from Spain's Valencia region," Utilities Policy, Elsevier, vol. 79(C).

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