DROUGHT EPISODES MANAGEMENT: THE ROLE OF PRICE1

ABSTRACT: Municipal water utilities, when faced with drought conditions, typically impose a temporary water use restrictions program to achieve conservation goals. If water is sufficiently price-elastic, however, at least some of the problems associated with restrictions can be avoided by imposing a drought surcharge and allowing users to adjust voluntarily. This paper develops two sources of evidence on price elasticity in Honolulu, Hawaii, with the evidence suggesting that a drought surcharge will induce much of the desired conservation, especially when used with educational publicity.