Defensive Investment in Municipal Water Hardness Reduction

Abstract

We produce estimates of household's willingness to pay (WTP) for reduction in water hardness using a defensive investment framework. Using total dissolved solids (TDS) data observed in municipal water supplies in combination with product-by-store level point-of-sale scanner data on consumable water softening product sales, we provide among the first revealed preference estimates of WTP for water hardness reduction and quality control. Using instrumental variable regressions, we find that household's marginal WTP increases as the observed TDS in municipal water increases. Aggregating these estimated WTP at county level, we show how total WTP varies geographically, after controlling for income and fixed effects. Our estimations provide evidence that households have a non-negligible WTP for water hardness reduction, which has important policy implications for optimal water hardness management by municipal water authorities, and those policies aimed to target salinity management within surface and subsurface water supplies.