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The effects of policy announcement, prices and subsidies on water consumption

Nature Water volume 1, pages 176–186 (2023)Cite this article

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Abstract

With increasing water security challenges, water utilities around the world face complex decisions on water supply and demand management. Here we investigate the effects of price and subsidy increases on water conservation in Singapore. Using anonymized monthly billing data on water consumption for 2.2 million residential accounts over 10 years, our difference-in-differences estimates show that the announcement of a two-phased 30% price increase reduces water consumption by 3.7% more for the public housing, relative to the private apartments. The announcement effect is larger than the implementation of price increase. Consumers with lower water usage respond more to the announcement of price hike, while consumers with higher usage respond more to its implementation. An increase in utility subsidy reduces low-income households’ financial burden but does not affect water consumption, possibly due to consumers’ low attentiveness to the subsidy change. The results suggest that the traditional market-based policy instruments, such as price and subsidy, could be combined with attention priming to achieve sustainable outcomes with minimal requirement on technology advancement and institutional innovation.

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Fig. 1: Graphical analysis of regression discontinuity.
Fig. 2: Google search on price and rebate change.
Fig. 3: Heterogeneous responses to price change.
Fig. 4: Distributional effect of price increase.
Fig. 5: Heterogeneous responses to subsidy increase.

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Data availability

The water consumption data for this study are provided by PUB, Singapore’s national water agency, under non-disclosure agreement for the current study. Upon reasonable request to PUB and with the necessary non-disclosure agreements signed with NUS, it is available onsite at NUS to replicate all the results from the deposited Stata code.

Code availability

Stata code used for data analysis in this study is available at https://github.com/fmsgp/waterprice.

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Acknowledgements

All the authors acknowledge the funding and water consumption data support from the PUB, Singapore’s national water agency. The funder had no role in study design, data analysis, decision to publish or preparation of the manuscript. Research reported in this publication was supported by the Institute for Environment and Sustainability, at the Lee Kuan Yew School of Public Policy, National University of Singapore.

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Authors and Affiliations

  1. Department of Finance, Economics, and Real Estate, National University of Singapore, Singapore, Singapore

    Sumit Agarwal

  2. Lee Kuan Yew School of Public Policy, National University of Singapore, Singapore, Singapore

    Eduardo Araral & Huanhuan Zheng

  3. Center for Advanced Study in the Behavioural Sciences, Stanford University, Stanford, CA, USA

    Eduardo Araral

  4. Department of Real Estate, NUS Business School, National University of Singapore, Singapore, Singapore

    Mingxuan Fan & Yu Qin

  5. China Center for Economic Research, National School of Development, Peking University, Beijing, China

    Yu Qin

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All authors contributed to the research design, implementation, data analysis and writing.

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Correspondence to Mingxuan Fan.

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Nature Water thanks R. Quentin Grafton, V. Ratna Reddy and the other, anonymous, reviewer(s) for their contribution to the peer review of this work.

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Agarwal, S., Araral, E., Fan, M. et al. The effects of policy announcement, prices and subsidies on water consumption. Nat Water 1, 176–186 (2023). https://doi.org/10.1038/s44221-023-00028-1

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