Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247884 
Year of Publication: 
2021
Series/Report no.: 
IFN Working Paper No. 1402
Publisher: 
Research Institute of Industrial Economics (IFN), Stockholm
Abstract: 
Water is an increasingly scarce resource. It is often distributed such that consumers do not face any marginal cost of consumption, creating a common pool problem. For instance, tenants in multi-family buildings can often consume both hot and cold water at zero marginal cost. Using high-frequency data over many years, we analyze how the introduction of apartment-level metering and billing (IMB) affects hot water consumption. We find that introducing a marginal cost, reflecting the market price, decreases consumption drastically by 26%. Hence, price interventions can curb free-riding behavior and help the conservation of cheap but precious resources. Our results also show that heavy water users in the top consumption quartile account for 72% of the reduction. Moreover, cost-benefit calculations indicate that IMB for hot water is a cost-effective policy tool for reducing water and energy consumption.
Subjects: 
Residential water consumption
Water conservation
Common pool problem
Free-riding
Individual metering and billing
JEL: 
D12
Q21
Q25
Q28
Document Type: 
Working Paper

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