Worsening drought conditions alongside the growing demand for municipal water poses challenges in maintaining agricultural production, protection of natural water resources, and ensuring that urban areas have adequate water resources (Borisova et al., 2011). As a result, city governments have tried to manage urban demand for water by encouraging water-conserving behavior and technology adoption by municipal clients.
Oklahoma has experienced periodic droughts for the last decade, with historic and exceptionally extreme drought conditions in 2012 that forced city governments to prioritize water conservation (Arndt, 2002; South Central Climate Science Center, 2013). By Spring 2015, conditions improved but still remained abnormally dry, and persistent areas of drought were projected in the Oklahoma Panhandle and southwestern Oklahoma (Heim, 2015).
Since the beginning of 2012, the Oklahoma City Utilities Department (OKCUD) has actively sought ways to encourage its customers to conserve water. Mandatory water use restrictions in Oklahoma City include odd/even day watering and additional restrictions depending on the water levels of Oklahoma City’s reservoirs (City of Oklahoma City, 2013). An inclining block rate pricing structure was implemented in Fall 2014 (Boyer et al., 2015; Crum, 2014). An inclining block rate pricing structure is designed to induce conservation of water by charging more per unit of water consumed above a given base block and may consist of two or more tiers of rates. Oklahoma City adopted an inclining block rate specifically to charge more to commercial and residential customers for increased summer use, primarily for irrigation. In Oklahoma City and elsewhere, education to encourage irrigation water conservation and water demand management has focused on the residential sector (Boyer et al., 2015; St. Hilaire et al., 2008), whereas outdoor irrigation water conservation in the nonresidential sector has largely been neglected (Renzetti, 2015; Worthington, 2010).
A number of studies have examined residential water conservation potential using price and nonprice water conservation policies. Price-based tools refer to pricing or incentive policies that potentially encourage conservation behavior, such as increasing water rates or subsidies like rebates (Adams et al., 2009; Ghimire et al., 2015). Nonprice mechanisms are regulatory approaches and educational measures such as water usage feedback and mandatory restrictions on watering. A large part of these conservation efforts promoted water-efficient appliances and feedback instruments (Boyer et al., 2015; Gracia-Valinas et al., 2015; Hayden et al., 2015; Lee et al., 2013; Makki et al., 2013; Woltemade and Fuellhart, 2013).
The way commercial customers’ water consumption responds to price increases is termed as price elasticity of demand, i.e., how much water demand would change given an increase in price. Customers with higher elasticities of demand (i.e., elastic demands) are more likely to cut back on water use. According to Renzetti (2015) and Reynaud (2003), commercial water demand tends to be inelastic. However, demand elasticity for commercial water is slightly more elastic, i.e., more responsive, to price changes than the residential sector. For example, Renzetti (2015) found that elasticity estimates for the commercial sector in the United States ranged between −0.23 and −1.33; this means a 1% increase in price only lowered demand by 0.23%. We expect that by including information on future price increases, the likelihood of commercial customers of adopting an SMS, SIC, or LIA will be greater than for businesses that did not see that information.
Price and nonprice approaches for inducing water conservation have been widely applied by water managers with the belief that these will work for the commercial sector, but little research on the commercial sector exists (California Urban Water Conservation Council, 2016; U.S. Environmental Protection Agency, 2016; Water Services Association of Australia, 2009). Evidence for nonprice mechanisms shows that technological adoption can reduce consumption. Lee et al. (2013) found that the consumption of water was significantly reduced in households that installed high-efficiency appliances. Several studies also found that technological changes and innovations in irrigation systems could reduce the amount of water used in landscape irrigation (Haley et al., 2007; McCready et al., 2009). Other approaches such as irrigation audits or assessments are also discussed in literature for commercial clients (Austin Water, 2016; Dallas Water Utilities, 2016) and for households (McCue et al., 2007). McCue et al. (2007) observed that households that consumed more than 300 gal/person per day were able to reduce their water use by 19% following an irrigation audit. A water demand management program in Sydney, Australia, in 1977, used many of the abovementioned conservation programs, including “industrial and commercial (water) audits” and “hotel (water) audits,” among others. Results of the project indicated that residential clients were more receptive to these conservation programs than industrial clients and found that the industrial and hotel audits were not effective at reducing water use (White and Fane, 2007). Other technological studies in horticulture dealt with understanding the potential for conservation among different technological fixes such as rain sensors, SMS, and SIC (Grabow et al., 2013). In sum, commercial water customers have seldom been the research and policy target by decision-makers and they overall seem less responsive to price and nonpricing conservation programs than residential customers in outdoor water conservation.
The objective of this study is to use CV, an economic study method that uses hypothetical scenarios about a change in costs, to analyze whether potential savings in water expenditures would induce commercial businesses to adopt outdoor irrigation water conservation methods and technologies. Second, the study examines the characteristics of firms that determine the likelihood of adopting water conservation methods. Finally, we tested whether including information on future price increases affects the likelihood of adoption.
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