Why Has Water Demand Declined in the U.S West?

The Pacific Institute has issued an impressive report on water demand trends in the Southwest.  To my deep surprise though, I can’t find the word “water prices” anywhere in the report!    To quote the report; “Almost every one of the water agencies included in the study experienced declines in per capita deliveries from 1990 to 2008. People and business are demanding less water than they did in 1990. This report does not attempt to determine the causes of these declines, but it does quantify these changes over time, giving a picture of trends for municipal water providers.”

Permit me to offer a conjecture.   Demand curves slope down.  Water prices have increased (for evidence click here) and households and firms have responded to this price incentive by wasting less water and adopting water efficient durables.   Such demand creates incentives for durables suppliers to market even more efficient durables (a green “domino effect”).  The net effects of these small ball individuals efforts is to limit the coming impact of climate change.  To paraphrase John Lennon;  “give the price mechanism a chance”!    The Pacific Institute’s report displays facts that document how we  gradually adapt to market signals.  During a time of population growth and per-capita income growth, water demand has declined!  That’s impressive.


Author: Matthew E. Kahn

Professor of Economics at UCLA.

13 thoughts on “Why Has Water Demand Declined in the U.S West?”

  1. That’s a lot of conjecture. As someone who lived in the area for most of the period, i am ROTFLMAO that someone could conceive that this madhouse of water rights battles would respond in a rational manner to a price regimen. During the period in question, there were several periods of pretty severe water shortages, and there were in fact rationing schemes in place, (odd/even outdoor watering etc). In some areas, there were price increases that accompanied the rationing, but these were often quite unpopular and short lived. There are also seasonal price variations in the per thousand gallon delivered price of water, higher in the landscape irrigation system season. The pricing mechanisms are all over the place, and in more than a few areas, ultra cheap water is required by water rights laws.

    I do believe, as I suspect you do as well, that water is far too cheap. However I don’t believe that private ownership of water, (hence the market forces) is anything but a nightmare scenario. I believe there is a way, within a regulated structure to heavily penalize profligate water use. In fact, the regulatory structure is needed to be able to cut off that profligate use is times of dire emergency, so as to deliver water to support life. I simply don’t trust the market not to gouge, and adopt the “just go die” attitude so prevalent today.

    I have some experience with this. I worked as a citizen volunteer in a small Front Range city in Colorado. This city went through its periodic rationing measures, but was absolute opposed to building in a tiered pricing structure. However, the city also knew it was producing about 30 percent more water that that for which it billed. The old hands in the water system knew the meters were bad, but the city was again adamant about taking an incremental replacement approach. I sold them on the idea of using about 50-60 of the new meters in stock to replace the meters in a random chosen sample of residences. We then tested the accuracy of the meters, and with the extrapolated results, demonstrated that not only was the metering system badly out of specified limits, that a lot of folks were getting free water while others were paying full freight! That did it. There was no need to go back and measure the effectiveness of replacement, as the number of complaints about bills skyrocketed, but revenues for the starved water infrastructure started flowing.

    At the end of the day, I believe your broad brush of “market forces” grossly simplifies and complex and urgent problem.

  2. I’ve been actively following water issues in the Southwest for 20 years. I did a month long tour of California, Nevada, Colorado, and Arizona with a copy of Cadillac Desert and took a long look at water projects from Dinosaur NM to Owens Valley and the Imperial Valley and everything in between. I think a while back there was a somewhat critical post on Reisner here on the RBC that I largely agreed with.

    And I have to ask. Does Matthew have a clue what the water demand for crops (especially cotton) vs. houses are? This isn’t a difficult question. I wonder what would happen, if cropland was replaced with housing… thinking hard… which would mean the population would increase, potentially by a lot, and the demand for water, would be…

    What is it about University of Chicago graduates that they compulsively transform complex human social evolutions into stupid Econ 101 arguments?

  3. RickG–I would count that meter replacement as a price increase (and so, I suspect, would anyone else with rudimentary economics training) –whether that’s how it was most salable politically or not: the effect was that using the same quantity of water cost a great deal more, which looks like a price increase to me.

  4. Speaking of Econ 101, shouldn’t that be “Quantity Demanded”? Water demand has almost certainly gone up, while, as you say, water consumption has been pushed down by price increases (and supply restrictions!).

    From the evidence presented here, that’s all we can say. Your Panglossian assumption that this is normatively good may be correct, but is unfounded. Based on the data, these savings could have all come from costless efficiency measures, or price increases which are trivial enough that they cause no harm (but wait, if they were trivial, people wouldn’t have cut consumption would they?). But you don’t know that. They could also possibly have come from rationing forced by a giant drought, or zombie Stalin diverting all of LA’s water to heavy industry in Mexico. In fact, water bills are becoming a burden on some households. Agricultural land has been left fallow. Maybe it’s all necessary, but belt-tightening is not a free lunch.

  5. Several things are going on, and I have no idea their relative magnitude: old 5 gallon/flush toilets are reaching the end of their useful lives, and getting swapped out for 1.75 gallon toilets from the Home Depot. Old ‘flood’ shower heads, the same. There are complaints (“The old one swept everything away! Sometimes there are still floaters after I flush!”) but their volume is getting lower, partly because manufacturers are getting better at making low-demand toilets than they were ten years ago. We have a noodge on our block who talks to everyone about the virtues of xeriscaping, natives, etc. The County had been selling water for an amount that didn’t fully cover its water-and-sewer costs, that’s over now, pretty big price increases. The County allows submetering for apartments in complexes, and every builder with an eye on the future is including them, so tenants in fact have a cost reason to care about leaky toilets.

    This is a mix of price and nonprice mechanisms – I think they both help.

  6. In situations like this, public utilities (being nonprofit and in it for the long term) can often do a better job implementing market mechanisms than private corporations (which by law and custom are driven to get the highest current return, even if that means huge costs for their successors after they’ve cashed out. See Akerlof’s “Looting” paper, also Enron in the california electricity market). The best compromise might be nominally private corporations, but with hideously encumbered shares so that short-term thinking was discouraged.

  7. Water demand in Colo is decreasing per capita, but of course the sheer number of capitas continues to increase. We have utilities swapping out irrigation nozzles, incentives for xeriscape, tiered water pricing, etc; my water bill just went up to pay for a pipeline and treatment that cost ~$7000/af. In California, flood irrigation is decreasing, meters are being installed, old contracts fall and new pricing is higher, Colo River overage taken back, land salinated and retired, moving water and negotiating new contracts, etc. Some of it is pricing, some education. I too think water is way too cheap (as is gasoline), but try raising or tiering prices and getting reelected.

  8. Chaz is correct about water deliveries. From the linked study:

    Total water deliveries by these 100 agencies increased from about 6.1 million acre-feet in 1990 to about 6.7 million acre-feet in 2008. The volume of Colorado River basin water deliveries by these agencies also increased by about 0.6 million acre-feet over this period, from 2.8 million acre-feet to 3.4 million acre-feet, rising from 46 percent to 51 percent of total deliveries. The agencies delivering water in southern California actually delivered four percent less water in 2008 than they had in 1990, despite delivering water to almost 3.6 million more people. In fact, 28 water agencies in five different states delivered less water in 2008 than they had in 1990, despite population growth in their service areas.

    So in Southern California less water was delivered, but overall the trend is up.

  9. and, ironically, declining demand will push prices up further, independent of other market forces. Fewer gallons among which to spread the fixed costs of production…

  10. A study of water conservation in New Mexico saying that price is only one factor (and not necessarily the dominant one) that leads to water conserving behavior:

    I might have relayed this here before, but the town I live in has a still-robust paper from analysts in the water dept that found the same thing: during our drought in the early naughties, the water dept installed some smart meters and did some tiered pricing to gauge behavior in shortages. The lower incomes responded to pricing, the higher incomes did not but instead responded to smart meters and demand. Can’t find my bookmark at the moment…

  11. What Chaz sez. quantity of D vs D confusions abound in glib discussions. I’m disappointed to see an economist contribute a bit to them.

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