Water Demand in the Residential and Tourism Sectors: Evidence and Implications for Efficient Management

DeMaagd, Nathan John
Roberts, Michael J.
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Water resource management is becoming an increasingly pertinent topic worldwide, particularly in the face of a growing population and changing climate. This is especially true on O'ahu, Hawai'i, where concerns about the availability of fresh water existed even before water resources were strained by urban growth, tourism, and the potential negative effects of climate change. Reduced recharge due to increased runoff and the possibility of reduced rainfall, combined with aquifer withdrawals potentially exceeding maximum sustainable yield, may result in a reduction of freshwater quantity and quality. The status of water availability on O'ahu is thus precarious. There is a vigorous effort to quantify the availability of fresh water and estimate the effects of climate change on aquifer sustainable yield, but less attention has been paid to the equally-important effect the climate has on water demand. These three essays attempt to help fill this gap in the literature by examining the relationships between climate and water use in the residential and tourism sectors of O'ahu. In the first chapter, we exploit a novel quasi-natural experiment to estimate the price elasticity of water demand for single family homes, which are the largest consumer of water on the island. After demonstrating the ease with which researchers may fall victim to common data analysis pitfalls despite using the newest popular techniques, we show that the demand for water is highly price inelastic. This information will be useful for policymakers and utilities when developing water management solutions. We also examine the potential effects of local policies on consumer welfare. The second chapter examines the relationship between climate and household water use. Unlike other similar studies which rely on comparing two regions with different climates or the same region over time, our study uses the highly varied microclimates on O'ahu to identify links between water use and climate. We find strong relationships that are likely causal, and apply them to downscaled future climate scenarios. We suggest that the high degree of uncertainty not only between different climate scenarios, but also within scenarios, dictates that a successful water management strategy will prepare for a wide variety of potential climate outcomes. In the final chapter, we analyze one of O'ahu's largest industries, tourism, and the effect it has on water use. Other studies have examined similar issues on tourism-heavy islands with limited freshwater resources. However, many of these studies focus on islands in developing nations with economies, institutions, and demographics much different than those of a highly-developed region like O'ahu. Further, our study is, to our knowledge, the first to separate the impact of hotels and the impact of transient vacation rentals like Airbnb on the island's water resources. We find that, although there is evidence of a positive relationship between hotel visitors and water use, hotels are one of the smallest consumers of overall water use. Residential units, many of which host the transient vacation rentals, are the largest consumers of water as a whole. Despite this, and the large number of transient vacation rentals, we do not find an economically-significant relationship between vacation rental occupancy and water use. We discuss potential reasons for this, including limitations of the data. Implications for future scenarios and additional work are discussed.
Economics, Climate change, Tourism, Water demand
94 pages
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