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The Economics of Safe Drinking Water

This paper studies a drinking water market in which a water company, faced with random contamination, chooses a treatment system, treatment levels, and whether to notify consumers that they should drink bottled water rather than risk exposure to contaminants in the tap water. The paper describes efficient practices including protocols which prescribe when a company should notify customers to drink bottled water, and regulatory standards on post-treatment water quality that depend upon system size, the extent of contamination, and the customer notification decision. Implications for contemporary safe drinking water law are discussed. (JEL L51, Q25).