Common Tragedies

Thoughts on Environmental Economics

Bright ideas

Posted by Daniel Hall on October 20, 2007

My (admittedly dysfunctional) utility company charges all residents in my building the same amount for water in a given month — they simply measure total building water use and divide by the number of units, charging each unit the same amount. (Yes, at least all units are the same size.)

I think it’s pretty clear this makes water a common pool resource in our building. No one resident has the proper incentive to use the appropriate amount of water — I’m only paying for one-tenth of those extra 3 minutes I spend in the shower.

This problem frequently comes up with large commercial buildings. In addition to the principal-agent problems that affect landlord-tenant interactions, utility companies turn electricity use into a collective action problem by metering the use of the entire building, but not individual tenants. But this may be about to change. Via the CS Monitor:

In a move last month that could spread nationally, Pacific Gas & Electric (PG&E) will now allow high-rise owners to meter each tenant’s electricity usage and penalize energy hogs, rather than rely on one bill for an entire building.

It’s a simple idea, and one that should get tenants to properly internalize their electricity use. Now if we as a society could just get some of the other externalities associated with energy use internalized

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