Drought Management Policies and Economic Effects on Urban Areas of California 1987-1992

The 1986-1992 California drought caused most urban water agencies to adopt policies that aimed to reduce water consumption in their service areas. These policies determined in part how much customers reduced water use and the size and distribution of any accompanying economic and noneconomic losses. Understanding these losses is important because this knowledge should enter into decisions on how to allocate water among competing uses and whether or not to invest in new water projects. The authors evaluate the losses caused by the drought using the concept of willingness-to-pay, i.e., the amount that water users would have been willing to pay to avoid drought management policies. This study reports the results of a detailed survey of urban water agencies to provide the background information needed for future studies to determine willingness-to-pay. The survey data presented suggest when and where the drought effects were most severe and how the effects were distributed across residential, commercial, industrial, government, and agricultural users. To illustrate how willingness-to-pay can in part be quantified, this report includes a pilot study of residential consumer surplus losses due to the drought, based on household-level water use data in the Alameda County Water District.