Consumer welfare consequences of the California drought conservation mandate

Abstract

AbstractWe measure consumer welfare losses from reductions in water use following California's conservation mandate in 2015, which imposed utility service area‐specific conservation targets of 4% up to 36%. We document imperfect compliance with the mandate and discuss factors that may explain the pattern of reductions ultimately observed. The basis for calculating welfare losses is an econometric model of residential water demand that yields local demands with elasticities ranging from −0.56 to −0.10. In terms of economic efficiency, we estimate a 20% gain in consumer welfare under the efficient allocation of conservation reductions relative to the observed pattern of reductions.