AWWA ACE95028

The basic economic principles of environmental policy in the US are found in the theory of externalities. This theory focuses on economic activities that create side-effects ignored by the producer. The literature on externalities is huge--literally hundreds of books and papers address external issues. Attempts to internalize the cost of externalities provides the justification for much of the regulatory practices in the US. This paper examines the externality issues surrounding water conservation. While most discussions and examples of externalities emphasize negative impacts on the environment, this paper looks at the positive externalities of practicing conservation such as applying benefit-cost analysis of water conservation programs and comparing demand side management with supply augmentation.