Case Study: Water Conservation Policy

Group C
 Ritesh Khadka
 Ruby Maskey
 Sandeep Shrestha
 Subarna Budhathoki
Overview

 Summary Of The Case

 Discussion Questions
 Recommendation
Summary Of The Case

 Deficit in water supply in USA and Canada

 USA facing drought conditions in 2003
Environmental authorities concern over
Water Conservation
Proposed “pricing” as a means to
stimulate conservation
Estimated Price elasticity of demand for water :
Households: -0.2 to -0.4
Business Users: -0.5 to -0.8
Demand for Household Users (More Inelastic)
Price (P)
Demand for Business Users (Less
Inelastic)
P1

P0

Q1 Q0 Q2 Q3 Quantity (Q)

Figure: Demand Curve of Water Consumption for Household and Business

Users
Consumers in Different Pricing Systems

Pricing Percentage of Consumers

System
U.S.A Canada
Flat Rate 23 43
Declining - 12
Rate
Metered 77 45
Discussion Question 1:
How do you expect the price-elasticity of
the residential demand for water to vary
with the total annual consumption of the
household?
Variation of Price Elasticity with Total
Annual Consumption
Price/ ’000 liters in Individual Price Elasticity
dollars($) household
consumption in
liters
10 10,000 -
11 9,800 -0.20
12.1 9,595 -0.21
13.31 9,355 -0.25
14.64 9,074 -0.30
Discussion Question 2:

Who benefit relatively more from a

flat fee? Poor or rich households?
Relative Benefit between Rich and Poor

Economic Charge in Total Charge

class Dollars Consumptio per unit
n (liters) per
month
Rich 10 20,000 0.001

Poor 10 10,000 0.0005

Discussion Question 3:

Considering that a large proportion of

residential users face a flat charge or
even decreasing unit prices, do you
think that the price-elasticity of
residential demand is under or over-
estimated?
Consumers in Different Pricing Systems

Pricing Percentage of Consumers

System
U.S.A Canada
Flat Rate 23 43
Declining - 12
Rate
Metered 77 45
Pricing Percentage of Consumers
System (supposed)
U.S.A Canada
Flat Rate 62 57
Declining - 18
Rate
Metered 38 25
Discussion Question 4:

What are the implications of your

answer in question 3 for raising prices
as a conservation policy?
Implications
 Not very effective
Higher proportion of flat charge or declining
rate users more inelastic demand
Recommendations

Flat Rate subscribers need to be

shifted to Metering

Fixation of maximum consumption

level per household