Developing a Quantitative Spatial Economic Model to Evaluate Urban Water Conservation Policies in Denver

This paper develops a quantitative spatial model for the city of Denver to consider policy proposals to reduce urban water demand using data on land use and water demand by households and business firms from the Denver Water service areas. The research presented here focuses on four counterfactual policy scenarios: 1) a “cash for grass” proposal where households are compensated for converting a portion of lawn area into non-irrigated land; 2) the relaxing of development regulations to increase housing supply; 3) reductions in the price of recycled water; and 4) raising the marginal price of water for both households and business firms. “Cash for grass” policies reduce water demand but are costly and lead to a decline in the population as the cost of yard space exceeds the value of the transfer by the water district such that households face a net loss of income from the policy. Depending on the specification for relaxing housing supply regulations, aggregate water demand may rise or fall. Reducing the price of recycled water leads to greater uptake by firms; however, the policy lowers revenue for the water district as firms substitute away from costlier potable water toward recycled water. Raising the marginal price of water for households and firms lowers water demand. The revenue for the water district rises when the price of household water is increased, but falls when the price is raised for firms as the number of firms in each location declines.