Turning Water Into … An Urban Spatial Model With Water as an Input

This paper incorporates water demand decisions by households and firms into an urban spatial model. Using both land-use and water demand data from the Denver Water service area, I calibrate the model to focus on four policy options to reduce urban water demand: (1) a “cash-for-grass” proposal to reduce irrigated lawn area, (2) relaxing development regulations to increase housing supply, (3) lowering the price of recycled water, and (4) raising the marginal price of potable water. The “cash-for-grass” policy reduces water demand, yet the policy is both costly and leads to an increase in the average household yard size. Loosening development regulations may lead to either a rise or fall in aggregate water demand. Lowering the price of recycled water increases demand by firms but lowers revenue for the water district. Numerical simulations suggest that raising marginal water rates are the most effective means of reducing aggregate water demand.