A Tragedy of the Commons in the Household: Water Use and Intrahousehold Externalities

A household’s water usage has negative externalities on community members and future community members when water resources are scarce and depletable. If piped water is delivered by a water utility, this externality can be addressed by setting the price equal to the marginal social cost.  The household is paying the social cost on the margin. However, each individual within the household may not be paying that price. If individuals are not completely altruistic toward their family members or cooperation fails because of an inability to enforce individual consumption levels, then each will only partly internalize the price if the water bill is partly or fully paid by other family members. This is a challenging problem for a water utility to solve because the water is provided to a household, not an individual. There is an analogous problem with electricity or penalties for not recycling or any other case where a household’s behavior imposes externalities beyond the household and a service is provided to and priced at the household level. This motivates the research question for this project: Are households in which members are less altruistic toward each other less price sensitive in their water consumption?