Reports of water quality violations induce consumers to buy bottled water

The 1996 Safe Drinking Water Act Amendments required that water utilities send quality reports to customers. We test whether receiving such reports of health violations increases purchases of bottled water using newly released data and disaggregate changes in demand at the intensive and extensive margins. We find that a water-quality violation makes American households 25 percent more likely to purchase bottled water and, among purchasers, expenditures increase 4-7 percent, both larger responses than found in previous studies. Consumers spend approximately $300 million per year-about 4 percent of annual national spending on bottled water- to avoid health risks associated with violations.