NERA Economic Consulting

In this paper we study households ’ and businesses ’ willingness to pay (WTP) to avoid drought water restrictions, using stated choice experiments to reveal the set of preferences required to calculate WTP. Using a sample of residents and businesses in Canberra, Australia, we find that customers evidence a lack of willingness to pay to avoid most types of drought-induced restrictions. Respondents appear unwilling to pay to avoid low level restrictions at all. They also appear unwilling to pay to avoid higher levels of restrictions which are not in place every day, and all year. Given the option of watering on alternative days, customers appear willing to adjust their watering schedules compared to paying higher water bills. Similarly, customers appear willing to tolerate high level restrictions for limited periods each year (up to all summer), compared to paying higher water bills