Yates, David, Felipe Vásquez Lavín, D Purkey, Santiago Guerrero, M Hanemann and J Sieber. 2013. “Using economic and other performance measures to evaluate a municipal drought plan.” Water Policy 15: 648-668.
Download reference Doi:10.2166/wp.2013.204
Municipal water managers confront the challenge of anticipating when available water supplies may be insufficient to meet water demands and thus implement conservation policies, often in the form of drought plans. Drought plans are typically based on command-and-control (CAC) approaches like rationing and use restrictions, and are formulated to meet specific measures of performance. It is perceived that if customers are made aware of the required level of demand curtailment, and if the anticipated levels are achieved, no further service reductions will occur. The implication is that the drought plan would achieve a better outcome than the situation where no drought plan was in place and delivery shortfalls materialize unexpectedly, because of the imposition of abrupt water supply and system constraints.
This paper evaluates whether the welfare costs associated with drought plan transactions between a municipal water agency, the El Dorado Irrigation District (EID) in California, USA and its customers supports these perceptions. The EID imposes a tier pricing plan for municipal customers, and we have formulated this as a Discrete Continuous Choice (DCC) model of demand within a climate driven Water Evaluation and Planning (WEAP) model of the complete EID water system. The DCC is then inverted to estimate compensating variation (CV) or the loss of consumer welfare in the case where a customer does not receive water to match a preferred level of demand. In addition to monetized welfare loss, we look at other metrics of performance such as reservoir storage and hydropower generation, as surrogates for recreational opportunities and additional district revenues, respectively. Results shows that the welfare loss from the imposed drought plan is greater than if no drought plan were in place; but this comes at the price of substantially lower reservoir storages, which are known to be highly valued but hard to monetize.