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Information and modeling issues in designing water and sanitation subsidy schemes


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


In designing a rational scheme for subsidizing water services, it is important to support the choice of design parameters with empirical analysis that stimulates the impact of subsidy options on the target population. Otherwise, there is little guarantee that the subsidy program will meet its objectives. But such analysis is informationally demanding. Ideally, researchers should have access to a single, consistent data set containing household-level information on consumption, willingness to pay, and a range of socioeconomic characteristics. Such a comprehensive data set will rarely exist. The authors suggest overcoming this data deficiency by collating, and imaginatevily manipulating different sources of data to generate estimates of the missing variables. The most valuable sources of information, they explain, are likely to be the following: 1) Customer databases of the water company, which provide robust information on the measured consumption of formal customers, but little information on unmeasured consumption, informal customers, willingness to pay, or socioeconomic variables. 2) General socioeconomic household surveys, which are an excellent source of socioeconomic information, but tend to record water expenditure rather than physical consumption. 3) Willingness-to-pay surveys, which are generally tailored to a specific project, are very flexible, and may be the only source of willingness-to-pay data. However, they are expensive to undertake, and the information collected is based on hypothetical rather than real behavior. Where such surveys are unavailable, international benchmark values on willingness to pay may be used. Combining data sets requires some effort and creativity, and creates difficulties of its own. But once a suitable data set has been constructed, a simulation model can be created using simple spreadsheet software. The model used to design Panama's water subsidy proposal addressed these questions: a) What are the targeting properties of different eligibility criteria for the subsidy? b) How large should the subsidy be? c) How much will the subsidy scheme cost, including administrative costs? Armed with the above information, policymakers should be in a position to design a subsidy program that reaches the intended beneficiaries, provides them with the level of financial support that is strictly necessary, meets the overall budget restrictions, and does not waste an excessive amount of funding on administrative costs.

Suggested Citation

  • Gomez-Lobo, Andres & Foster, Vivien & Halpern, Jonathan, 2000. "Information and modeling issues in designing water and sanitation subsidy schemes," Policy Research Working Paper Series 2345, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2345

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    References listed on IDEAS

    1. Lars Gårn Hansen, 1996. "Water and Energy Price Impacts on Residential Water Demand in Copenhagen," Land Economics, University of Wisconsin Press, vol. 72(1), pages 66-79.
    2. Sergio Ardila & Ricardo Quiroga & William J. Vaughan, 1998. "A Review of the Use of Contingent Valuation Methods in Project Analysis at the Inter-American Development Bank," IDB Publications (Working Papers) 33298, Inter-American Development Bank.
    3. Michael L. Nieswiadomy & David J. Molina, 1989. "Comparing Residential Water Demand Estimates under Decreasing and Increasing Block Rates Using Household Data," Land Economics, University of Wisconsin Press, vol. 65(3), pages 280-289.
    4. Vivien Foster & Ian J. Bateman & David Harley, 1997. "Real And Hypothetical Willingness To Pay For Environmental Preservation: A Non-Experimental Comparison," Journal of Agricultural Economics, Wiley Blackwell, vol. 48(1-3), pages 123-137.
    5. Meghir, Costas & Phillips, David, 2008. "Labour Supply and Taxes," IZA Discussion Papers 3405, Institute for the Study of Labor (IZA).
    6. Rajah, N & Smith, S, 1993. "Distributional effects of household water charges," Fiscal Studies, Institute for Fiscal Studies, vol. 14(3), pages 86-108, August.
    7. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
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    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.


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