The hidden costs of drinking water rationing in water-stressed Mediterranean countries: Evidence from Algeria

Water scarcity poses significant challenges in Mediterranean countries, particularly where an intermittent supply and inefficient networks lead to increased economic and social costs. This paper analyses the cost structure of Algeria's drinking water utilities, with a focus on rationing, inefficiencies and production constraints. Using a translog cost function and a cluster-robust CRE-IV approach, we identify economies of scale in production and distribution. The strong complementarities between water losses and distributed volume suggest a tendency to prioritise water production over maintenance. Furthermore, reduced service hours combined with production capacity constraints lead to a significant increase in marginal costs. We estimate the shadow price of water at 18.59 DZD/m³, compared to a marginal cost of 5.77 DZD/m³, highlighting the inefficiencies of current strategies. Our findings emphasise the need for better resource allocation, including network rehabilitation, demand-side management and cost-reflective pricing, to enhance efficiency and sustainability in water-stressed regions.