The New York Times has published a long article about water shortages in one of Brazil's major cities but never mentions what is the current price of water nor does it ponder what is the price elasticity of demand for water. This direct quote suggests that the price of water is extremely cheap.
"More than 30 percent of the city’s treated water is estimated to be lost to leaks and pilfering. In a statement, the water utility said it was seeking to reduce leaks. It has been offering discounts to reduce consumption, while starting to impose steep fines this month on high water use."
Discounts to reduce consumption? How about acknowledging the law of demand and raising water prices? Yes, there are "carrots" and "sticks" but why only use "carrots"?
I have searched the Internet and cannot find the market price of a gallon of water in this city. Even The Economist doesn't bother to list the price.
The Water Authorities in this city should run a simple experiment. Assuming they bother to meter water consumption (do they?), let them raise the price of a gallon of water by 20% and let's see how much consumption declines by. I would guess that the answer will be 30%. They an alert the population that they will take this action and that they will use the revenue collected to fix the leaky pipes (which will enhance the supply of water).
My mother will say that the poor do not have the money to pay an extra 20%. Well, you don't have to be Milton Friedman to think about how to offset this with an income transfer. Define P as the original price per gallon and assume that each poor person was consuming G gallons per year. Now the price under my new rules would by 1.2*P which would require total expenditure of 1.2*P*G for the poor to be able to afford their old bundle. Given this algebra the City would need to transfer to each poor person; 1.2*P*G - P*G = .2*P*G dollars per year to be able to afford their old water bundle at the new prices. If there are N non-poor people in the city and M poor people then to keep a balanced budget; each non-poor person would transfer .2*P*G*M/N to each poor person.
If the middle class revolt against this transfer then maybe the Gates Foundation will pay this?
Let markets work and "scarcity problems" vanish. The NY Times needs to read Greg Mankiw's Econ 101 book.