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Water Markets, Demand and Cost Recovery for Piped Water Supply Services: Evidence from Southwest Sri Lanka

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  • NAUGES Céline

    (LERNA, University of Toulouse)

  • VAN DEN BERG Caroline

Abstract

In many countries water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of providing for the service. Yet, the question arises on how consumers will react to such price increases. The authors illustrate the impact of price increases on consumption of piped water through a study of the demand for water of piped and non-piped households using cross-sectional data from 1,800 households in Southwest Sri Lanka. The (marginal) price elasticity is estimated at -0.74 for households exclusively relying on piped water, and at -0.69 for households using piped water but supplementing their supply with other water sources, with no significant differences between income groups. Those households that depend on non-piped water sources have a time cost elasticity (as a proxy for price elasticity) of only -0.06. The authors discuss the implications of these results in terms of pricing policy.

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Bibliographic Info

Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 06.08.201.

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Date of creation: Aug 2006
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Handle: RePEc:ler:wpaper:06.08.201

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  1. Shin, Jeong-Shik, 1985. "Perception of Price When Price Information Is Costly: Evidence from Residential Electricity Demand," The Review of Economics and Statistics, MIT Press, vol. 67(4), pages 591-98, November.
  2. Marcello Basani & Barry Reilly & Jonathan Isham, 2004. "Water Demand and the Welfare Effects of Connection: Empirical Evidence from Cambodia," Middlebury College Working Paper Series 0429, Middlebury College, Department of Economics.
  3. Strand, Jon & Walker, Ian, 2005. "Water markets and demand in Central American cities," Environment and Development Economics, Cambridge University Press, vol. 10(03), pages 313-335, June.
  4. Arbues, Fernando & Garcia-Valinas, Maria Angeles & Martinez-Espineira, Roberto, 2003. "Estimation of residential water demand: a state-of-the-art review," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(1), pages 81-102, March.
  5. Celine Nauges & Jon Strand, 2007. "Estimation of non-tap water demand in Central American cities," Working Papers 14201, Institut National de la Recherche Agronomique, France.
  6. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  7. Mansur, Erin T. & Olmstead, Sheila M., 2012. "The value of scarce water: Measuring the inefficiency of municipal regulations," Journal of Urban Economics, Elsevier, vol. 71(3), pages 332-346.
  8. Gilbert,Christopher L. & Vines,David (ed.), 2006. "The World Bank," Cambridge Books, Cambridge University Press, number 9780521029018, April.
  9. NAUGES Céline & STRAND Jon, 2006. "The Value of Water Connections in Central American Cities: A Revealed Preference Study," LERNA Working Papers 06.23.216, LERNA, University of Toulouse.
  10. Crane, Randall, 1994. "Water markets, market reform and the urban poor: Results from Jakarta, Indonesia," World Development, Elsevier, vol. 22(1), pages 71-83, January.
  11. Pattanayak, Subhrendu K. & van den Berg, Caroline & Yang, Jui-Chen & Van Houtven, George, 2006. "The use of willingness to pay experiments : estimating demand for piped water connections in Sri Lanka," Policy Research Working Paper Series 3818, The World Bank.
  12. S. Gaudin, 2006. "Effect of price information on residential water demand," Applied Economics, Taylor & Francis Journals, vol. 38(4), pages 383-393.
  13. NAUGES Céline & VAN DEN BERG Caroline, 2008. "Household's perception of water safety and hygiene practices : Evidence from Sri Lanka," LERNA Working Papers 08.09.253, LERNA, University of Toulouse.
  14. Jasper M. Dalhuisen & Raymond J. G. M. Florax & JHenri L. F. de Groot & Peter Nijkamp, 2003. "Price and Income Elasticities of Residential Water Demand: A Meta-Analysis," Land Economics, University of Wisconsin Press, vol. 79(2), pages 292-308.
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