Elasticity of the price of water

In the early 2000s, there was a study in a Ukrainian city that considered the predictable water demand as part of a master plan for renovating and upgrading the existing water and wastewater systems. To date, this study is the one that best illustrates, in my mind, the considerable elasticity of the price of water.

In this city, there were two different kinds of water consumers:

1. mostly individual homes, some with yards, where the water consumed was measured by a meter, and where consumption was around 150 liters/capita/day (lcd)
2. mostly apartments in condominium buildings, where the water was charged on a per-person basis, and where consumption was around 250 lcd (there was a meter at the foot of the building)

It stands to reason that a house with a yard would require more water (per capita) than an apartment, and in fact this is verified elsewhere. However, the study observed that apartment dwellers were consuming significantly more that house dwellers, despite being mostly poorer.

The city undertook to install individual meters in the apartment complexes, so that each family would be billed according to its actual consumption, rather than a flat per-person fee. The anticipated behavioral evolution was almost immediate. Without delay, the consumption of apartment dwellers dipped to about 150 lcd. Leaks were fixed, faucets turned off, showers shortened, etc... and nobody was worse off.

In fact, everyone was better off, because the reduced future (expected) water demand led to planning for smaller, and cheaper infrastructure.