| Abstract: | ABSTRACT: Four alternate schemes often used to deal with a water shortage are: physical rationing, lifeline with increasing block rates, rationing with resale, and pure price rationing. Each of these are analyzed using a supply-demand framework. The theoretical results are applied to a representative California water district and the welfare loss is calculated for a hypothetical 20 percent reduction in water supply for six different income classes. We find that reliance on schemes using the price mechanism in one form or another is clearly superior, in terms of welfare loss, as a means of dealing with a water shortage. |
