An allocation-based rate (ABR) is a special type of increasing block rate (IBR) price structure that is receiving increased attention from urban water suppliers in places like California where population growth and climate change continue to increase water scarcity. Previous work by Baerenklau et al. [Baerenklau, KA, KA Schwabe and A Dinar (2014a). Allocation-based water pricing promotes conservation while keeping user costs low. Agricultural and Resource Economics Update, 17(6), 1–14; Baerenklau, KA, KA Schwabe and A Dinar (2014b). The residential water demand effect of increasing block rate water budgets. Land Economics, 90(4), 683–699.] investigates the conservation potential of ABR and finds that consumption under ABR was 10–15% below that of a comparable uniform rate structure for a southern California case study. This paper extends that work by using the discrete–continuous choice framework to estimate household-level welfare effects of ABR for the same dataset. We find that despite the observed decrease in consumption, average household welfare actually increased under ABR due to its non-linear structure. We also find that similar results would have been achievable with a simpler standard IBR structure. While either of these block rate structures is welfare-preferred to uniform price and quantity instruments, neither clearly dominates the other.

Rebate programs are often used in the residential water sector to alleviate market failures that may hamper the adoption of water-efficient technologies. In this paper, we examine whether several rebate programs stimulate or crowd out private investment in indoor and outdoor technologies. To do so, we use a panel of household-level data from a water district in Southern California for the period 2014–2015. Our results indicate that, while all the rebate programs considered in the analysis increase private investment in water-efficient technologies, only outdoor rebate programs generate further private investment in other outdoor technologies.

This paper estimates feasible water savings for a sample of nine urban water districts in California during the height of the 2012-16 drought, just prior to the implementation of mandatory water use reductions, using household production theory and stochastic frontier analysis. Estimates of feasible savings are compared to mandated reductions and actual reductions in each district. Although the mandated reductions were generally feasible, our results show that they had asymmetric impacts across districts and tended to impose larger burdens on some disadvantaged groups.