Pricing and In-Kind Transfers in Environmental Crisis

What role do in-kind transfers to low-income households play when environmental crises necessitate demand reductions for essential goods? During the “Day Zero” drought in 2017 and 2018, the City of Cape Town successfully shielded low-income residents from increasing water prices by providing limited quantities of free and discounted water, seemingly without substantially increasing water use at a time when the resource was particularly scarce. Quasi-experimental analysis of Cape Town water billing data shows that low- and middle-income households in Cape Town were remarkably inelastic to their water price at the time, so that the free water closely approximated a cash transfer. 

This project investigates the drivers of household water use that underlie these low elasticities in Cape Town. In-person surveys on water use were conducted with targeted households in the city between April and July 2025, with embedded information interventions teaching participants about the city’s water supply and their household’s water bills and prices. This project seeks to evaluate whether low elasticities are primarily driven by unfamiliarity with water prices, and what other factors may blunt households’ responses to water price changes relative to other settings.