In 2014, California was in its third year of a major drought.

With water supplies dwindling, Governor Brown issued a plea for a voluntary 20 percent reduction in water use. This target was not reached. In early 2015, Governor Brown issued an executive order requiring local water agencies to reduce water use by 25 percent, but no enforcement mechanism was specified. No taxes or fines were in the executive order. State officials hoped that they could achieve compliance without resorting to fines.7

a. From an individual homeowner’s perspective, what are the costs and benefits of using water during a drought? Why do you think that the voluntary reduction order in 2014 didn’t work?

b. Using concepts from this chapter, explain how you might get individual homeowners to reduce water use during a drought.

c. Eventually, many communities began levying fines on water use. However, while many middle-income families dramatically cut water use, wealthy households cut back their water use relatively little.8 How can you explain this phenomenon from an economic perspective?