Water Water Everywhere

Sydney, Melbourne, Canberra, Adelaide and Perth now seem to have more or less permanent water restrictions in place – several of which ban any watering of lawns, any use of garden sprinklers, washing cars with a hose, or watering gardens except in certain hours.

Call me a crazy economic rationalist, but if we really think we don’t have enough water, why don’t we put the price up? Under the current system, we refuse to sell water to people who’d dearly love to water their lawns, but keep the price artificially low for people who want a big bath. And we’ll let you water your garden, but not with a time-saving sprinkler, only with a hand-held hose. Wouldn’t the more sensible approach be to set the price so as to bring demand down to the desired level? After all, this is what we do with electricity, milk, bread, and hey, just about every other commodity.

I get two answers to this when I suggest it to friends.

1. If you want water, you can always buy a rainwater tank. True, but we’re imposing a very high price for that extra water. Most lawn-lovers will watch their grass die before they pay the cost of installing a tank.

2. Water is a human right, and we shouldn’t deny it to poor people. Agreed – and using price mechanisms rather than quantity restrictions can make the poor better off, not worse off. When we put the water price up, let’s write an annual rebate cheque to low income households, allowing them to buy what we judge to be a reasonable amount of water each year. Some will buy the water. Others will use the money for something else. Water restrictions are about as efficient a way of helping low-income Australians as sending your bank details to a Nigerian emailer is at tackling poverty in Africa.

Incidentally, (1) and (2) are related. Those who can afford to circumvent water restrictions by buying a watertank will tend to be the more effluent affluent.

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12 Responses to Water Water Everywhere

  1. Jennifer says:

    Water restrictions in metropolitian Australia may be more about promoting what is now considered morally good, than actually saving water.

    Earlier this year I read in the SMH that, “Full dams will not end water restrictions”. The article went on, “Although the exact nature of the restrictions had not been decided, Mr Sartor (NSW Minister) said they may allow people to wash their cars with hoses again, but only if they have trigger nozzles.” Further, “A survey by the Independent Pricing and Regulatory Tribunal found high levels of public support (in Sydney) for water restrictions.”

    But how useful are the restrictions? Promoting water saving showerheads without a consideration of whether or not this might lead to great water use as you spend more time under the shower trying to get wet!


  2. Jarrett says:

    Yes, one will spend more time under a low-flow shower head, just as low-fat foods succeed because people eat correspondingly more of them to make a meal.

    Pricing needn’t have anything to do with promoting good behavior, as the left will be inclined to do. Just build in the full price of the water infrstructure, including environmental side-effects, and you can justify as high a price as you want.

    You could also charge people to return water (with stuff in it) to the sewer system. It would encourage, er, backyard water-reclamation, no?

    Yours, Jarrett (http://urbanist.typepad.com)

  3. Andrew Leigh says:

    User pays sewage? Jarrett, you’re brilliant.

  4. marklatham says:

    Here in perth the biggest water guzzlers are those in the wealthiest suburbs-what a surprise.
    However,householders should not be fooled by the propaganda.
    We only consume about 12% of treated water,the rest is used by industry and horticulture.

  5. Graham Young says:

    Jarrett, you’re behind the times. Brisbane did have a proposal to charge for sewerage out as well as water in.

    Andrew, Kevin Cox suggested in an article on our site http://www.onlineopinion.com.au/view.asp?article=2380 that market pricing would be more effective under a system where most people received a rebate based on how much less than a determined amount. Sounded like a good idea to me, and I see you’ve partly taken it up in your comments about Water as a Human Right.

  6. Andrew Leigh says:

    Graham, in a rational world, Kevin’s suggestion would be economically almost the same as mine. The reason I prefer mine is the behavioural economics research on endowment effects *see http://www.towson.edu/~jpomy/behavioralecon/behavioralecon.html). This suggests that if you give someone something, they want more money to part with it than they would if they didn’t have it and needed to buy the same good. The experiments were done with mugs and pens, but if behavioural economics applies equally here, then people in Kevin’s model will be more likely to consume the allocation amount. In my model, they’ll be more likely to just consume what they need.

    Nice to know that others are thinking about this as well, though.

  7. Richard says:

    Regarding water tanks. If you compare the capacity of a tank that could fit onto a typical suburban block, to the annual water consumption for a typical household, they are about an order of magnitude different. There is often a lot of rainfall running off a house roof, but the cost of storing that water far exceeds the cost of water delivered via the mains.

    The cost of the tank – the annual opportunity cost of the capital invested in an insignificantly small tank will probably be greater than your annual water bill. Move to the country and supply your own water for a while and you’ll find $1-$2 per kilolitre is very reasonable.

    I’m all for recycling grey water and any other efficient water conservation techniques, but storing significant amounts of water is much more efficient for our community and economy if it is done at a very large scale.

  8. Sinclair Davidson says:

    Sorry, I’m late to the discussion.

    The current state governments would never bring in market pricing for water. First, they would have to admit that water is not scarce. Second, this would increase pressure for more dams.

  9. Andrew Leigh says:

    Sinclair, always good to have you in the discussion, late or otherwise. But here, I’m not sure I understand your arguments. We can achieve the same consumption levels as present with a price signal or a quantity constraint. It’s just that using the price mechanism results in a higher consumer surplus.

  10. Sinclair Davidson says:


    I understand your argument and agree with it. My two points are that (a) water is proably not very expensive (the market price might not be much higher than it is at present). More importantly though, imagine the state government increased the price substantially above the current level. In addition to saving etc. voters might become sufficiently concerned about water to vote for more dams. At present the ALP state governments are able to veto dams and the electorate doesn’t care enough to worry – but given much higher waters prices?

  11. Andrew Leigh says:

    Sinclair, if you assume that the quantity is the same under both regimes, I’m not sure it’s obvious that the political pressure would be higher under my proposed regime. But even if I’m wrong – is voter pressure for more dams a bad thing?

  12. Sinclair Davidson says:

    Voter pressure for more dams is neither good nor bad. BUT, for obscure reasons, the ALP state governments (at least in Victoria) think it is bad.

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