When is Arsenic Poisoning Prevention Unaffordable? Determining the EPA 'Affordability Criteria' for Small Water Systems Under the 1996 Clean Drinking Water Act

Why would anyone want lower quality drinking water? The Safe Drinking Water Act allows an "affordability, variance technology, small system variance exemption" to the drinking water standards based on a supply side argument. It assumes small drinking water systems have significant diseconomies of scale in meeting the maximum contaminant levels. We can test this assumption by examining the cost of compliance technologies by system size developed by the Environmental Protection Agency to meet the mcl for arsenic. The data show that the least costly arsenic reduction technology to meet the current mcl of 10 parts per billion (ppb) is modify coagulation/filtration. This technology is also six to seven times more expensive to implement for very small systems (50 people or less) than for the small and medium size systems. At least for very small drinking water systems the arsenic case supports the assumption of diseconomies of small scale production. On the demand side, Albert Hirschman provides a theory that allows us to look at the tradeoff between the prices and the varieties of quality, e.g., mcl, for two types of consumers for a given quantity of drinking water. We describe the EPA affordability criterion. Then we analyze it in terms of changes in consumer surplus and economic rent from welfare theory. Finally we suggest an alternative criterion that we believe is more consistent with economic theory.