AnalysisA comparison of life cycle cost analyses for a typical college dormitory using subsidized versus full-cost pricing of water

This study examines the impact of public policy on life cycle cost analyses for a hypothetical high-density residential dormitory. The specific public policy decisions considered in this study are (1) operating subsidies for municipal water production and treatment, (2) capital subsidies in the form of infrastructure grants to municipal water districts from state and federal governments, (3) deferred recapitalization and maintenance, and (4) technology improvements required by more stringent water quality standards. These four public policy influences create market imperfections, which “artificially” alter the price of water from its natural equilibrium. In this study, market imperfections are factored into the current consumer price of water to determine the full-cost price in four distinct municipalities. Results suggest that market imperfections created by public policy tend to undervalue life cycle cost analyses for efficient solutions. Implications of the results for researchers, public-policy makers, and management educators are discussed.