A contingent valuation study of consumers' willingness to pay for water: an approach to conserving Christchurch's groundwater resource

Abstract

Christchurch's groundwater resource, which supplies the City's residents with top quality water, is not inexhaustible as was once thought. Recently, there has been concern that the resource will be over used and destroyed. The Canterbury Regional Council has estimated an interim 'safe yield' at 143 million cubic metres per year. The City Council has proposed introducing a pricing mechanism to charge for water, thereby conserving the resource. One problem with this proposal is the City Council has little information on how consumers will respond to such a mechanism. Failure to take this information into account is likely to result in insufficient reduction in consumption, to conserve the resource. One method of predicting consumer response is to derive a demand curve for water. This report concentrates on deriving a demand curve for domestic consumers, using the Contingent Valuation Method. The results indicate that in order to ensure consumption does not exceed the safe yield, other sectors of the market for water must reduce their consumption of water, not just the domestic sector. The aggregate demand curve provides sufficient information, with a uniform flat rate price structure, to determine the price per litre necessary to reduce consumption by a specified amount in the domestic sector. The aggregate demand curve cannot be used, with an increasing block price structure, to determine accurately the prices to be charged to conserve the resource. The increasing block price structure would need to reflect the differences in the various sectors of society (such as income) to achieve the conservation objective. This information can be obtained by deriving demand curves for different sectors of society. An approach to deriving these curves, and the information they provide for managers of the resource, is presented in this report.