Using price to encourage conservation:
Economists argue that without real prices and measurements that would determine cost, there’s no incentive to conserve consumption. But these prices and systems were set in a time when water shortage wasn’t a huge issue. Robert Carson, an economics professor who specializes in natural resources at University of California San Diego, says that caps on water prices were set in part so municipalities could not abuse the utility for profit.
“California law requires that a water utility can only collect money to cover its costs,” says Carson. “While preventing cities from using water utilities to extract lots of extra revenue, it prevents a water district from using a higher price to reduce demand.”