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98 Part i california Water of how much people would be willing to pay not to have their supplies reduced.22 This willingness to pay increases as water becomes scarcer, and it is likely higher in the short term than in the longer term—when time allows adaptation with new technology, such as more efficient shower heads or low-water-using plants.23 As shown in Chapter 6, continued urban conservation will be important for managing scarce water resources, and this shift will be most effective if technologies, tastes, and habits can adapt to minimize the costs of adjustment. An especially important frontier will be outdoor water use, which now accounts for most net urban use (residential exterior, large landscape, plus some propor- tion of commercial and industrial uses—Figure 2.12). Shifting landscapes from thirsty lawns to low-water-using plants can greatly reduce net urban water use (Hanak and Davis 2006). Do urban water users pay too little? In water management circles, it is often said that California’s urban water users pay too little for water. A comparison is made with monthly cell phone bills, and the implication is that consumers are getting a bargain on their water bill relative to the value of the water to them—or the amount they would (or should) be willing to pay. The comparison with cell phone bills is apt. As of 2006, the average price of treated water delivered to households was roughly $960 per acre-foot (in 2008 $), and the average monthly water bill for single-family households was $42, less than a typical cell phone subscription (Table 2.4). The important question, however, is not whether users pay too little rela- tive to the value of water to them—this is true, on average, for most goods and services.24 Rather, what matters from a water policy perspective is whether they pay enough to cover the full costs of providing water, including the capital and maintenance costs to the water utility and the costs of protecting environmental values affected by water diversions. As discussed below in our review of water system finances, the first part of this answer is a qualified “yes,” but the second part is a defi- nite “no.” Not only can adapting water prices to reflect the full cost of water generate an appropriate stream of funding for public benefits of the water system, it can also send the right signal to consumers to use the resource more efficiently (Chapter 6). 22. See Renwick and Green (2000), Barakat & Chamberlin, Inc. (1994), Genius et al. (2008), Jenkins, Lund, and Howitt (2003), Rosenberg, Howitt, and Lund (2008), Rosenberg et al. (2008), and California Department of Water Resources (2009). 23. Economists also measure the consumer benefits from using water under different water price structures by comparing the additional benefits from additional amounts of water consumed to the marginal cost (price) of that amount (Hewitt and Hanemann 1995; Olmsted, Hanemann, and Stavins 2007; Hall 1996). As discussed in Chapter 6, the social goal is to design an economically efficient, revenue sufficient, and politically acceptable water rate (Hall 2000, 2009). 24. Economists refer to the excess in willingness to pay over price as the “consumer surplus.”