Transparent Prices for Municipal Water: Impact of Pricing and Billing Practices on Residential Water Use

Abstract: As water scarcity increases and supply source are becoming more expensive to develop, municipal governments and utilities are looking for innovative ways to reduce per capita water consumption. Because of low price elasticity of residential water demand, price-based policies are often dismissed as a conservation tool for municipal water. We hypothesize that an important reason for the sluggish response to price changes is the lack of transparency in billing. If this is the case, improving the informational content of water bills could be used as a tool to increase the effectiveness of the price system and promote conservation. Existing aggregate data from a cross section of US water utilities was supplemented with collected data describing the informational content of water bills. Our findings indicate that the inclusion of price information on the bill decreases water use and increases price elasticity, while the evidence is weak for other types of information