Advanced Search
MyIDEAS: Login to save this paper or follow this series

Designing direct subsidies for water and sanitation services - Panama : a case study

Contents:

Author Info

  • Foster, Vivien
  • Gomez-Lobo, Andres
  • Halpern, Jonathan

Abstract

As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criteria for direct subsidy schemes is difficult, and identifying eligible households may entail substantial administrative costs. The authors, using a case study from Panama, discuss some of the issues associated with the design of direct subsidy systems for water services. The conclude that: 1) There is a need to assess - rather than assume - the need for a subsidy. A key test of affordability, and thus of the need for a subsidy, is to compare the cost of the service, with some measure of household willingness to pay. 2) The initial assessment must consider the affordability of connection costs as well as the affordability of the service itself. Connection costs may be prohibitive for poor households with no credit, suggesting a need to focus subsidies on providing access, rather than ongoing water consumption. 3) A key issue in designing a direct subsidy scheme is its targeting properties. Poverty is a complex phenomenon, and difficult to measure. Eligibility must therefore be based on easily measurable proxy variables, and good proxies are hard to find. In choosing eligibility criteria for a subsidy, it is essential to verify what proportion of the target group fails to meet the criteria (errors of exclusion) and what proportion of non-target groups is inadvertently eligible for the benefits (errors of inclusion). 4) administrative costs are roughly the same no matter what the level of individual subsidies, so a scheme that pays beneficiaries very little, will tend not to be cost-effective. It is important to determine what proportion of total program costs will be absorbed by administrative expenses. 5) Subsidies should not cover the full cost of the service, and should be contingent on beneficiaries paying their share of the bill. Subsidiesfor consumption above a minimum subsistence level, should be avoided. Subsidies should be provided long enough before eligibility is reassessed to avoid"poverty trap"problems. 6) The utility or concessionaire can be helpful in identifying eligible candidates, because of its superior information on the payment histories of customers. It will also have an incentive to do so, since it has an interest in improving poor payment records. Thought should therefore be given at the design stage to the role of the service provider in the implementation of the subsidy scheme. 7) The administrative agency's responsibilities, the sources of funding, and the general principles guiding the subsidy system should have a clear legal basis, backed by regulations governing administrative procedures. 8) To reduce administrative costs, and avoid duplication of effort, it would be desirable for a single set of institutional arrangements to be used to determine eligibility for all welfare, and subsidy programs in a given jurisdiction, whether sub-national, or national.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2000/07/07/000094946_00062406381470/Rendered/PDF/multi_page.pdf
Download Restriction: no

Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2344.

as in new window
Length:
Date of creation: 31 May 2000
Date of revision:
Handle: RePEc:wbk:wbrwps:2344

Contact details of provider:
Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Email:
Web page: http://www.worldbank.org/
More information through EDIRC

Related research

Keywords: Sanitation and Sewerage; Environmental Economics&Policies; Health Economics&Finance; Public Health Promotion; Economic Theory&Research; Town Water Supply and Sanitation; Environmental Economics&Policies; Health Economics&Finance; Poverty Assessment; Water Supply and Sanitation Governance and Institutions;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Philippe Marin, 2009. "Public-Private Partnerships for Urban Water Utilities : A Review of Experiences in Developing Countries," World Bank Publications, The World Bank, number 2703.
  2. Basani, Marcello & Isham, Jonathan & Reilly, Barry, 2008. "The Determinants of Water Connection and Water Consumption: Empirical Evidence from a Cambodian Household Survey," World Development, Elsevier, vol. 36(5), pages 953-968, May.
  3. Briceno-Garmendia, Cecilia & Estache, Antonio & Shafik, Nemat, 2004. "Infrastructure services in developing countries : access, quality, costs and policy reform," Policy Research Working Paper Series 3468, The World Bank.
  4. Luis A. Andrés & J. Luis Guasch & Thomas Haven & Vivien Foster, 2008. "The Impact of Private Sector Participation in Infrastructure : Lights, Shadows, and the Road Ahead," World Bank Publications, The World Bank, number 6545.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2344. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.