The Cost of Learning How to Change

Published: Wednesday, October 28, 2009 5:24 PM PDT

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One thing that economics helps us understand is that the cost of information matters. Consumers, on the whole, balance the costs of collecting and processing data against the savings they can achieve by acting on information they obtain. When savings are relatively small (as even in the most aggressive of scenarios would be the result of water conservation) information costs better be low.

If not, then many will throw up their hands in frustration.

Thinking about information costs helps bring into focus just how far we will still need to go before to maximize the potential for pricing to drive greater conservation.

1) Water meters need to be easier to read and understand.
Most readers probably have, at best, a vague understanding about the location of their water meter. In most instances, if you want to read it get ready to hunt for a flathead screwdriver, open up a heavy covering, wipe off the mud and grime while kneeling on the ground.

Most will find that they need to do at least a couple of mathematical calculations to figure how much water they have used since they got their last bill. Given these costs, I would bet that only a small number of consumers are going to frequently try to obtain and process information about how their level of consumption is being impacted by changes in behavior. They might look at the meter to try to figure out if their sprinkler system is leaking but not to find out how much they are conserving by not shaving in the shower.

2) Bills are not easy to understand
Ideally consumers would get a bill that clearly lays out the incremental unit cost in water so they could clearly understand how much they are paying for each incremental unit of water.

Fat chance.

My bill is relatively simple (we live just outside the city of San Diego). We get useful information about how our water consumption has changed from the previous billing cycle and how it compares to our use a year ago. Yet my bill is chalk full of confusing information which doesn’t really help me understand how much I would (or would not) save if we cut back.

The city of San Diego’s water bill makes the cost of obtaining information of value much harder.

3) Most consumers don’t have good information/experience in how to cut back on use.
I did an experiment last night. It takes our family members, on average, about 2 minutes to brush our teeth and our bathroom faucet puts out about 1.25 gallons a minute.

So by turning off the faucet in the a.m. and p.m. while we brush, our family is saving 300 gallons a month. But if we cut back our landscape irrigation by just 15 seconds for each station we save nearly twice that amount.

But figuring this out took close to 25 minutes, a calculator, and reading little tiny print on my sprinkler heads. I am sure better minds than mine could have done it faster. For this landscape-engineered challenged homeowner, however, the "information cost" of such an exercise was missing a new episode of the Daily Show.

Call me a barbarian but that is a sacrifice I am not prepared to make on a regular basis.

Aligning meters and bills in a way that helps consumers (as opposed to plumbers and meter readers) will be expensive and take time.

It is going to be an incremental effort as new meters and updated bill systems are deployed. However, if we want to use price to drive down consumption that has to be the goal so that it is relatively costless for people to know how much money they can save by taking specific actions. Economics helps us understand that incentives matter ... but also helps us understand that this is only true if consumers have access to relatively cheap information on which to act.

-- ERIK BRUVOLD

3 Comments so far on this story...

Only expensive prices for excessive use will change behavior. My parents trained me not to waste; this used to be a common value. They taught me to love nature. I studied iology/the environment and learned how waste effects the world. I developed the habit of conservation. I never used your time-consuming "scientific" approach; I paid attention and made changes as I learned. Now I consistently get a frugal user's discount despite my huge lot. My incentive was wanting to do the right thing. Most people are going to need financial incentives and penalties to change. Look at your comment, perhaps not serious. You'd rather watch TV than learn to cut water use, even though once you learn these things, the investment has been made and pays off forever. Also, you can teach your kids. Better they learn now: they are sure to have less water to waste.

Posted by janet | reply to this comment
October 28, 2009 8:16 pm

All the obstacles to water conservation stem from the traditional attitude on the part of water agencies that their job is to help their customers obtain and use more water, not less. Today, water agency revenues are directly tied to their water sales, so they have an economic incentive to encourage customers to use more of their product. Any water conserving changes in their customers behavoir will have a direct negative impact on their own revenues. In 1981 the CPUC decoupled energy utilities sales from their allowed revenues, which lessened the utilities opposition to customer conservation, but since local water agencies have no state agency that regulates their rates, the problem persists, reflected by half hearted local water conservation campaigns that fail to produce any real customer behavior changes. .

Posted by Watcher | reply to this comment
October 29, 2009 11:10 am

Watcher brings to bear a REALLY interesting question (which is great cocktail party fodder since it doesn't really have a chance of happening). If one could privatize water delivery and then use a pricing model like the PUC did for the decoupled Investor owned energy utilities would it work? It is a really interesting question. My gut (and game theory) makes me skeptical. Energy could work this way because CA has few (no?) industries that are highly energy dependent. However, the state has Agriculture which is and I would guess that, faced with powerful incentives to get favorable rules, would organize and lobby intensely for rules favorable to itself (in constrast, there are just not the same kind of lobbying pressures evident up at the PUC for larger energy users - high costs are an irritant not make or break proposition)

Posted by Erik Bruvold | reply to this comment
October 29, 2009 1:28 pm

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