Prices versus Rationing: Marshallian Surplus and Mandatory Water Restrictions*

Abstract

An aggregate daily water demand for Sydney is estimated and used to calculate the difference in Marshallian surplus between using the metered price of household water to regulate total consumption versus mandatory water restrictions for the period 2004/2005. The loss in Marshallian surplus from using mandatory water restrictions is calculated to be $235 million. On a per capita basis this equates to approximately $55 per person or about $150 per household – a little less than half the average Sydney household water bill in 2005.