Abstract:
In periods of drought, urban water systems commonly rely on nonmarket programs to induce temporary conservation, leaving the marginal price of water unchanged; an alternative is to raise the price. Using pooled cross-sectional and time series observations on single-family residential customers of the Honolulu Board of Water Supply (1982), demand for water is estimated as a function of price, income, household size, rainfall, and a dummy variable denoting a water restrictions program. Short-run elasticities suggest that an increase in marginal price of less than 40\% would achieve a 10\% reduction in water use, even during a drought episode. An accompanying conservation program would mitigate the necessary price increase, but only slightly.
