Heterogeneity in Consumer Climate Adaptation: Evidence from a Water Scarcity Crisis

Climate change increases the frequency of droughts, threatening access to safe drinking water and exacerbating socioeconomic inequality. This paper studies household adaptation to a severe drinking water crisis that affected Montevideo, Uruguay, during the 2022–2023 drought. Following a sharp deterioration in tap water quality, households faced salient changes in both water quality and bottled water prices due to emergency policies. Using high-frequency retail scanner data, administrative measures of water quality, and household survey data, we document large increases in bottled water consumption, strong heterogeneity by income, and persistent post-crisis differences. These patterns motivate a structural model to quantify welfare impacts and evaluate alternative policy responses.