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Measuring Welfare Losses from Urban Water Supply Disruptions

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  • Steven Buck
  • Maximilian Auffhammer
  • Stephen Hamilton
  • David Sunding

Abstract

The paper evaluates welfare losses from urban water supply disruptions for a sample of 53 urban water utilities in California collectively providing service to over 20 million customers. The analysis accounts for the fact that most water utilities engage in a form of average cost pricing where volumetric rates are used to finance fixed expenses. We estimate utility-specific price elasticities for use in the welfare analysis, which are derived from a demand estimation based on a panel data set of 37 California water utilities. Welfare losses for an annual disruption range from an average of $1,458 per acre-foot of shortage for a 10% supply disruption to an average of $3,426 per acre-foot of shortage for a 30% supply disruption. The results indicate a household-level willingness to pay to avoid an annual disruption of approximately $60–$600 depending on the shortage size and location.

Suggested Citation

  • Steven Buck & Maximilian Auffhammer & Stephen Hamilton & David Sunding, 2016. "Measuring Welfare Losses from Urban Water Supply Disruptions," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 3(3), pages 743-778.
    • Handle: RePEc:ucp:jaerec:doi:10.1086/687761
    DOI: 10.1086/687761
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    2. El-Khattabi, Ahmed Rachid & Eskaf, Shadi & Isnard, Julien P. & Lin, Laurence & McManus, Brian & Yates, Andrew J., 2021. "Heterogeneous responses to price: Evidence from residential water consumers," Journal of Environmental Economics and Management, Elsevier, vol. 107(C).
    3. Soliman, Adam, 2022. "Prescriptive drought policy and water supplier compliance," Ecological Economics, Elsevier, vol. 197(C).
    4. Nemati, Mehdi & Buck, Steven & Soldati, Hilary, 2017. "The Effect of Social and Consumption Analytics on Residential Water Demand," 2017 Annual Meeting, February 4-7, 2017, Mobile, Alabama 252738, Southern Agricultural Economics Association.
    5. Steven Buck & Mehdi Nemati & David Sunding, 2023. "Consumer welfare consequences of the California drought conservation mandate," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 45(1), pages 510-533, March.
    6. Li, Weiqing & Chien, Fengsheng & Hsu, Ching-Chi & Zhang, YunQian & Nawaz, Muhammad Atif & Iqbal, Sajid & Mohsin, Muhammad, 2021. "Nexus between energy poverty and energy efficiency: Estimating the long-run dynamics," Resources Policy, Elsevier, vol. 72(C).
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