Municipal water demand has declined over the past several decades in many large cities in the western United States. The same is true in Clovis, New Mexico, which is a small town in arid eastern New Mexico, whose sole water source is from the dwindling southern Ogallala Aquifer. Using premises-level monthly panel data from 2006 to 2015 combined with climate data and additional controls, we apply a fixed effects instrumental variable approach to estimate municipal water demand. Results indicate that utility-controlled actions such as price increases and rebates for xeriscaping and water saving technology have contributed to the decline. Overall water demand was found to be price inelastic and in the neighborhood of −0.50; however, premises receiving toilet and washing machine rebates were relatively more price inelastic and premises receiving landscaping rebates were more price elastic, though still inelastic. In addition, the average premises receiving its first toilet rebate reduced water use by 8.4%, washing machine rebates lowered use by 9.2%, and the average landscaping rebate reduced water use by less than 5.0%. From the utility’s perspective, and assuming a 5.0% discount rate, levelized cost analysis indicates that toilet rebates are 34% more cost effective than washing machine rebates and nearly 800% more cost effective than landscaping rebates over their respective lives per volume of water conserved. While this research focuses on Clovis, estimation results can be leveraged by other small to mid-sized cities experiencing declining supplies, confronting climate change, and with little opportunity for near-term supply enhancement.
