Do Conservation Policies Work? Evidence from Residential Water Use

Abstract

In response to the historic 2011–17 California drought, local governments enacted a raft of conservation policies, and little is known about which ones explain the sharp decline in residential water consumption. To answer this question, we use a novel data set of hourly water consumption data for more than 82,300 households in Fresno, California, where water consumption declined by nearly a third, and have three main findings. First, we estimate the price elasticity of demand for water to be 0.16 for marginal rates and 0.39 for average rates. Second, reducing the number of days where outdoor watering is allowable from 3 to 2 substantially decreases water use, despite the availability of opportunities to substitute between permitted and nonpermitted hours, days, and seasons. Third, “bully pulpit” pronouncements about the water crisis increased public awareness of drought conditions but did not contribute to water savings. Overall, higher water prices explain 40%–44% of the changes in residential water use observed during our sample period in Fresno, and reductions in the number of days when outdoor watering is allowable explain 45%–51% of these changes. However, the absence of experimental or quasi-experimental variation in these policies means that we interpret this associational evidence cautiously.