We estimate the price elasticity of water demand with household-level data, structurally modeling the piecewise-linear budget constraints imposed by increasing block pricing. We develop a mathematical expression for the unconditional price elasticity of demand under increasing block prices and compare conditional and unconditional elasticities analytically and empirically. We test the hypothesis that price elasticity may depend on price structure, beyond technical differences in elasticity concepts. Due to the possibility of endogenous utility price structure choice, observed differences in elasticity across price structures may be due either to a behavioral response to price structure, or to underlying heterogeneity among water utility service areas. r 2007 Elsevier Inc. All rights reserved. JEL classification: Q21; Q25; Q28; L95; D12

[1] Urban water conservation is typically achieved through prescriptive regulations, including the rationing of water for particular uses and requirements for the installation of particular technologies. A significant shift has occurred in pollution control regulations toward market-based policies in recent decades. We offer an analysis of the relative merits of market-based and prescriptive approaches to water conservation, where prices have rarely been used to allocate scarce supplies. The analysis emphasizes the emerging theoretical and empirical evidence that using prices to manage water demand is more cost effective than implementing nonprice conservation programs, similar to results for pollution control in earlier decades. Price-based approaches may also compare favorably to prescriptive approaches in terms of monitoring and enforcement. Neither policy instrument has an inherent advantage over the other in terms of predictability and equity. As in any policy context, political considerations are also important.

Concern has been raised in the scientific literature about the environmental implications of extracting natural gas from deep shale formations, and published studies suggest that shale gas development may affect local groundwater quality. The potential for surface water quality degradation has been discussed in prior work, although no empirical analysis of this issue has been published. The potential for large-scale surface water quality degradation has affected regulatory approaches to shale gas development in some US states, despite the dearth of evidence. This paper conducts a large-scale examination of the extent to which shale gas development activities affect surface water quality. Focusing on the Marcellus Shale in Pennsylvania, we estimate the effect of shale gas wells and the release of treated shale gas waste by permitted treatment facilities on observed downstream concentrations of chloride (Cl − ) and total suspended solids (TSS), controlling for other factors. Results suggest that (i) the treatment of shale gas waste by treatment plants in a watershed raises downstream Cl − concentrations but not TSS concentrations, and (ii) the presence of shale gas wells in a watershed raises downstream TSS concentrations but not Cl − concentrations. These results can inform future voluntary measures taken by shale gas operators and policy approaches taken by regulators to protect surface water quality as the scale of this economically important activity increases.unconventional gas | water pollution | econometric analysis | panel data

A broad assessment is provided of the current state of knowledge regarding the risks associated with shale gas development and their governance. For the principal domains of risk, we identify observed and potential hazards and promising mitigation options to address them, characterizing current knowledge and research needs. Important unresolved research questions are identified for each area of risk; however, certain domains exhibit especially acute deficits of knowledge and attention, including integrated studies of public health, ecosystems, air quality, socioeconomic impacts on communities, and climate change. For these, current research and analysis are insufficient to either confirm or preclude important impacts. The rapidly evolving landscape of shale gas governance in the U.S. is also assessed, noting challenges and opportunities associated with the current decentralized (state-focused) system of regulation. We briefly review emerging approaches to shale gas governance in other nations, and consider new governance initiatives and options in the U.S. involving voluntary industry certification, comprehensive development plans, financial instruments, and possible future federal roles. In order to encompass the multiple relevant disciplines, address the complexities of the evolving shale gas system and reduce the many key uncertainties needed for improved management, a coordinated multiagency federal research effort will need to be implemented.

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This paper seeks to assess the current status of water quality trading and to identify possible problems and solutions. Water pollution permit trading programs have rarely been comprehensively described and analyzed in the peer-reviewed literature. Including active programs and completed or otherwise inactive programs, we identify approximately three dozen initiatives. We describe six criteria for successful pollution trading programs and consider how these apply to standard water quality problems, as compared to air quality. We then highlight some important issues to be resolved if current water quality trading programs are to function as the “leading edge” of a new frontier in cost-effective pollution permit trading in the United States.

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Rather than allowing water prices to reflect scarcity rents during periods of drought-induced excess demand, policy makers have mandated command-and-control approaches, like the curtailment of certain uses, primarily outdoor watering. Using unique panel data on residential end-uses of water, we examine the welfare implications of typical drought policies. Using price variation across and within markets, we identify end-use specific price elasticities. Our results suggest that current policies target water uses that households, themselves, are most willing to forgo. Nevertheless, we find that use restrictions have costly welfare implications, primarily due to household heterogeneity in willingness-to-pay for scarce water.