Drought == price ceiling enduced surplus demand?
2008-07-15 · Original WordPress address
So says newly minted Davis Ag Econ PhD David Zetland:
The real problem is that the price of water in California, as in most of America, has virtually nothing to do with supply and demand. Although water is distributed by public and private monopolies that could easily charge high prices, municipalities and regulators set prices that are as low as possible. Underpriced water sends the wrong signal to the people using it: It tells them not to worry about how much they use.
"But water is a necessity!" you cry? Well, sure people need to drink a couple gallons a day to live, but after that is the back yard pool really a necessity? do people in the desert really need to plant tropical flowers and trees? do golf greens need to be that green?
David's proposal:
I propose a system where every person gets the first 75 gallons, or 1.5 bathtubs, per day for free but pays $5.60 for each 75 gallons after that. Under my system, the monthly bill for the average household of three would come to $95.
My system is designed to reduce demand rather than cover costs. Revenue paid by guzzlers would cover the costs of those who use only a small amount of water. Any leftover profits could be refunded to consumers or used to enhance the quality or quantity of the water supply.
And there's even a pretty picture:
