ABSTRACT
ABSTRACT: Despite growing water scarcity, many water districts in California sell water to customers on a flat rate basis at a time when many policy makers advise sales on a volumetric basis to conserve water. A transactions cost model clarifies the district choice of water sales practice. The model assumes that districts maximize net consumer benefits when choosing between a flat rate and a volumetric sales option. The model is used to explain the observed pattern of flat rate and volumetric sale practices in the Central Valley of California and to predict the increase in volumetric sales resulting from an increase in the average cost of water. A logistic regression analysis of this data indicates that local water cost explains much of the variation in water sale practices in the Central Valley, as predicted by the model.
