Abstract
A significant alternative to physical rationing of water to achieve conservation is provided by the price system. To act like profit maximizing firms, municipal water utilities (MWD's) should price their water so as to earn the opportunity cost of capital (the market rate of return) on the assets. The actual internal rate of return is calculated for a sample of 30 California MWD's for a 12‐year period. For the 26 MWD's with a rate of return less than 10%, iterative simulations are run with increases in the MWD's average price to achieve the target rate of return. The magnitude of water conservation using the rate of return rule is reported for three alternative price elasticities of demand. The new implicit prices necessary to achieve the target rate of return are shown to be less than the cost of the cheapest new surface supply.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
