Please join us for our next Energy and Environmental Economics and Policy Seminar:
Wednesday, November 7, 2018
12:00 – 1:15 PM
157 Hosler
A light lunch will be provided. We hope to see you all there!
Price Perceptions in Water Demand
Daniel Brent
The Pennsylvania State UniversityEconomists advocate for using the price mechanism to manage water scarcity, but complex nonlinear rate structures prevalent in markets for municipal water obscure the marginal price signal to consumers. We conduct a randomized field experiment that jointly elicits knowledge about the cost of water and examines the impact of improved information on demand by linking a survey to water billing records. Half of our sample of 30,000 single family homeowners are randomly sent a survey that asks questions about the water bill and the costs of water-use activities (e.g. the cost of taking a shower), and subsequently provides the correct information. Results show that consumers have poor information about the marginal price of water and overestimate the costs of using water. Respondents are relatively better informed about their total bill and water consumption. In aggregate, respondents increase water use in response to the survey, potentially due to learning that water is cheaper than they previously thought. Increased consumption is concentrated among low users who are more likely to over-estimate the costs of using water.