University of California Water Resources Center

In this paper a basic theoretical model of residential water consumption that adequately represents consumer behavior when facing a nonlinear budget constraint is developed. The theoretical model for an individual consumer is adapted to yield an aggregate model that essentially preserves the structure of the demand function for the individual. The model is used to study the influence of prices and nonprice conservation programs on consumption and conservation behavior in three water districts in the San Francisco Bay Area. The empirical results show that pricing can be an effective tool in reducing water consumption but, when the influence of conservation programs is controlled for, the pricing effect is mitigated. Use restrictions and landscaping audits appear to be particularly effective in inducing conservation from consumers.