Alleviating excess demand for water is a reoccurring issue in California. An analytical framework is developed to examine the different ways to eliminate excess demand for water in California. Four ways are examined in the marshallian cross framework. First, shifting the supply schedule to the right. Second, shifting the demand schedule to the left. Third, increasing the price of water to the equilibrium point. Fourth, closing the excess demand gap by administratively rationing the quantity of water consumed. The role of institutions in determining the price of water and building infrastructure to increase the stock of water is examined An analysis of household water consumption behavior during the drought of 1987-91 reveals that households voluntarily forwent water consumption. Models of social capital are used to explain the forgone water consumption by households during the drought. The determinants of demand include social capital. The traditional reliance on increased physical capital as a way to reduce excess demand for water is compared to the use of social capital as a way to reduce excess demand. Social capital will increase in importance as physical capital exhibits decreasing return to investment.


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