Editorial — Volume 10 Issue 1 (March 2024)

1. Introduction

Water pollution and the improvement of water quality is the common theme of the five papers in this first Issue of Volume 10 of Water Economics and Policy. Four of the studies provide empirical evidence for the high economic benefits of water quality improvements: My et al. estimate the value of water-related ecosystem services including the regulation of water quality. Tavárez and Elbakidze, in their study on ancillary water service improvements, find the highest willingness to pay (WTP) for improved water quality. Tyllianakis studies the WTP for plastic pollution abatement in waterbodies, while Melstrom and Hyink quantify the economic benefits of restoration of polluted coastal areas. In the final study Li et al. investigate how far the introduction of a water user fee can contribute to a reduction in water pollution.

Also, from a methodological perspective, the five studies are quite interconnected, since four of them employ WTP approaches based on both stated preferences (papers 1, 2, 3) and revealed preferences (paper 4). Further, two papers (4 and 5) use natural experiments, thereby the final study provides a detailed discussion of methods to increase model robustness and to check for endogeneity in such kinds of models. Another contribution is the consideration of heterogeneity between water user groups and their preferences (papers 2 and 3), regions (paper 5), as well as between pollution traits (paper 4).

Thus, this issue, on the one hand, provides the reader with a range of empirical case studies giving evidence that there is a considerable WTP for improvements in different aspects of water supply (water-related ecosystem services, improvement of ancillary water services, abatement of pollution) in the Global North as well as in the Global South. On the other hand, the reader interested in methodological aspects will find a variety of approaches and model setups related to the estimation of WTP as well as with respect to natural experiments. The major findings and contributions of the single studies are described in the following.

2. Overview of the Papers in this Issue

2.1. “Does the value of water-related ecosystem services capture water scarcity? Application to rice farming in the Mekong Delta of Vietnam?” by My et al.

With climate change and growing demand for water by different sectors, water scarcity is an increasing problem in the Mekong River Delta region of Vietnam. In view of this, Nguyen H.D. My, Nguyen Duc Kien, Pham Xuan Hung and Le Thi Quynh Anh propose that the restoration and maintenance of provisioning (water supply) and regulating (water quality, flow and natural hazard mitigation) river ecosystem services (ESS) upstream can play a crucial role in the mitigation of water scarcity and related risks. This issue is analysed using a contingent valuation approach.

Based on face-to-face interviews with 401 rice farmers in An Giang and Can Tho regions, My et al. find that Mekong delta farmers recognize that upstream conservation measures affect their rice production and are willing to contribute to the restoration and maintenance of upstream ESS. Using probit models, they further analyse that the WTP is influenced by socio-economic factors such as income. What constitutes a novelty in this study is the inclusion of perceptions and the gender dimension in the model. It is found that the WTP is positively influenced by the perception of the severity and risk of water scarcity and of climate change as well as by the participation of women in the management of water. Also, the belief in green water management (e.g., alternate wetting and drying) as a coping strategy towards water scarcity increases WTP, while trusting in local blue water management (e.g., storage) decreases it.

The authors propose that policy measures should aim to enhance the involvement of women in water management, as this would lead to improved conservation outcomes. Finally, the authors suggest that in order to mitigate water scarcity, nature-based solutions such as green water management should be prioritized by policy makers as they align with farmer’s preferences.

While this paper proposes innovative approaches to address water scarcity, the second study in this issue looks at what can be done to improve the situation if water shortages cannot be avoided.

2.2. “Willingness to pay for ancillary water service improvements in Puerto Rico” by Tavárez and Elbakidze

In water scarce regions especially in developing countries, water shortages and municipal water supply interruptions may often be unavoidable as investments in their removal will be economically infeasible. The study by Héctor Tavárez and Levan Elbakidze explores strategies to cope with such situations by improving ancillary water services. They argue that if supply interruptions cannot be avoided, municipal water users can still benefit from a better distribution of information before supply interruptions, specific use restrictions (e.g., for garden irrigation) to prevent a total outage and improved tap water quality, which tends to deteriorate in times of drought.

The authors base their analysis on the case of Puerto Rico, a territory which has been prone to severe water shortages and recurring service interruptions which accumulated to several months per year during the last decade. In a country-wide online survey, they apply a discrete choice experiment to test the WTP for different water attributes such as water quality (odor and clearness), timing of planned service interruptions (weekend versus. weekdays), water use restrictions and improved notification about scheduled interruptions via TV and radio.

Based on the answers of 629 survey participants, several conditional logit models and latent class models reveal a positive WTP by Puerto Rican consumers for ensuring adequate water quality, having supply interruptions during weekdays only, and for an improvement of information about upcoming interruptions. Thereby the highest WTP is found for water quality: improved water quality is valued about four times higher than better information and eight times higher than for having interruptions scheduled during weekdays. Yet, results also reveal a significant influence of the region of residence and a variation of preferences between user groups. Conversely, consumers are found to be indifferent towards outdoor water use restrictions, possibly as they have developed an understanding of the need for such measures to deal with water scarcity and they consider this an admissible coping strategy compared to more in-house interruptions. Thus, this can be seen as an effective measure from a water-utility perspective.

By providing a measure of the benefits from improvements on a household level, which then could be aggregated and compared to the costs of possible investments, this study gives water planners insights on which measures to prioritize, given limited funds. The assessment of relative priorities of several water service attributes, along with the relevance of the place of residence as well as the investigation of unobservable preference heterogeneity across customers constitute the main innovations of this paper.

2.3. “Can knowledge, responsibility and environmentalism explain preference heterogeneity? A latent-class probit model analysis for plastic pollution abatement” by Tyllianakis

The location of respondents also plays a role in the study by Emmanouil Tyllianakis in which he examines the WTP of citizens for an abatement of macroplastic pollution in riverbeds and beaches in Indonesia. The main innovation of this study lies in the analysis of unobserved preference heterogeneity using a latent class model, integrating the effects of attitudes and knowledge on WTP for pollution abatement. Especially in a developing country context, this is an understudied topic. To this end, the author constructs a Generalized Structural Equation Model that allows for the estimation of non-linear latent class models. The models are parameterized based on data collected in a nationwide online survey. The latent class approach is then compared to a pooled model comprising all 751 survey participants.

It is revealed that accounting for prior experiences, environmental concern and awareness levels led to statistical differences between classes regarding the willingness to contribute monetarily to mitigate pollution. It is found that environmentally conscious respondents as well as those who are more exposed to plastic pollution are more willing to support pollution mitigation. Also, the proximity to waterways is shown to increase WTP, especially in urban areas.

The authors conclude that the suggested latent class approach is a useful tool to capture preference heterogeneity and allows to determine the drivers of preferences. This in turn provides a more nuanced picture of WTP for pollution abatement and prevents an otherwise possible overestimation of WTP values.

Likewise, the following paper, too, investigates the pollution of water bodies and analyzes the WTP for mitigation efforts. Yet, in this case, an ex-post approach is applied.

2.4. “Economic benefits from restoration actions in coastal communities” by Melstrom and Hyink

In the previous century, the water quality of the Great Lakes of North America had suffered from severe industrial and municipal pollution, such that by the middle of the 20th century the contamination made swimming and fishing in the lakes hazardous. To combat this problem, since the 1970s policies were implemented in the USA to restore the water quality. These resulted in major restoration efforts, which in the state of Michigan, however, took off only in the beginning of this century.

Against this background, Richard T. Melstrom and Jillian Hyink in their study develop a revealed preference approach to estimate the economic benefits from restoration of polluted coastal areas based on regional move decisions. Specifically, they develop a sorting model to simulate residential moves between counties and cities based on census data on populations and housing values as well as estimated moving costs in the period between 2000 and 2020 to recover WTP estimates for different locations. In a two-stage procedure, they first determine an average relative desirability for each location. In a second step, this is decomposed to a function of local characteristics to test the hypothesis that households tend to move to coastal communities after restoration actions have been implemented.

The authors use a difference-in-difference approach to analyse the WTP for living in different locations and its changes over time with ongoing restoration. Their findings show that households avoid living near a polluted lake, as reflected by a depressed WTP. They also observe that restoration efforts tend to target less preferred areas, Furthermore, it is revealed that households value the restoration of shorelines, even more so if recreational uses are restored. This study thereby adds to the literature by establishing a link between the economic benefits of environmental restoration and regional move decisions.

Also, the final study of this issue analyzes water pollution abatement based on a natural experiment.

2.5. “Does water resource fee to tax policy help reduce water pollution in China?” by Li, Ding and Liang

The water resource fee to tax (WRFT) was originally introduced in China to incentivize water conservation through charging for water use. While there are a few studies analyzing how effective this policy was in reaching this aim, the paper by Jiangyuan Li, Tao Ding and Liang Liang contributes to the literature by investigating the environmental impacts of that measure. Specifically, the authors examine how far the WRFT has helped to reduce water pollution, by analyzing a panel dataset of 31 Chinese provinces over the period of 2004–2020.

Using a time-varying difference-in-difference model, they find that the WRFT has significantly reduced chemical oxygen demand and ammonia nitrogen emissions. They further study the heterogeneity of effects between provinces and find that outcomes are influenced by economic development and prevailing water pollution levels, while, interestingly, the abundance of water resources has no significant effect. The authors identify three main mechanisms by which the water fees levied through the WRFT impact water quality: (1) a reduced sewerage discharge, as water consumption drops, (2) an increased water pollution prevention, triggered by the increase of government revenue, and (3) a promotion of green research and development, as companies are incentivized to develop water saving technologies.

The main implications of this study for practical water management are that there is a “double divided” to be achieved by charging water consumption fees, through (a) the conservation of water resources, and (b) the reduction of water pollution. To this one might add the extra government revenue being raised, which in turn could be re-invested to further enhance the aforementioned aspects. Further, the authors emphasize that governments need to consider local conditions such as economic development and water pollution levels in order to design effective policies.

Going beyond the case of the WRFT, another valuable contribution of this paper for the academic reader is the detailed analysis of robustness and potential endogeneity problems. To this end, the authors apply a variety of methods and checks, which can provide orientation for other studies in this field.

3. Synthesis and Policy Implications

In summary, this issue of Water Economics and Policy is of special relevance to readers interested in the economics and policies of improved water supply, especially with respect to water quality. From the studies in this issue, it becomes clear that water-related ecosystem services and the pollution of waterbodies are on the agenda of researchers as well as citizens not only in the Global North (paper 4) but also increasingly in the Global South (papers 1, 2, 3, 5). This is of high policy relevance, since the enhancement of water quality, besides being a Sustainable Development Goal (SDG) itself (Target 6.3; United Nations2015), has been found to be closely linked to the achievement of many other SDGs, including those concerning sustainable water supply, public health, equity, productivity and economic development, a relationship that is expected to even further intensify in the future, especially in developing countries (Alcamo2019).

Unfortunately, as stated by the World Bank (2019) there is no silver bullet to solve the problem of water pollution and due to the complexity of the matter, policy inaction is quite common particularly in the Global South. Yet, as the studies on WTP in this issue show, there are considerable economic benefits that can be realized from improvements in water supply and quality. However, these benefits are not always quite evident, as they might occur further downstream (paper 1) or realized indirectly (e.g., in the housing market, paper 4). Yet, the substantial payments citizens are ready to make for water supply enhancements indicate that if the problem cannot be mitigated directly at the source, such as through water user fees as indicated in paper 5, policy makers can resort to the consumer side to raise funds for water supply improvements. This could be implemented through additional payments on water bills, as suggested in papers 1 and 2 or voluntary payments as suggested in paper 3. As the studies in this issue indicate, citizens need to trust the payment mechanism to maximize the utility of such payment schemes. Further, potential policy measures should be designed in an inclusive way and consider heterogeneity among citizens, especially with respect to perceptions and attitudes. While there is much scope for further research on how to achieve this, the creation of water funds, which aim to unite the interests of different public, private and civil society stakeholders on a watershed level, could be one means towards this goal (United Nations2023).

ORCID

Jonas Luckmann  https://orcid.org/0000-0003-3657-3778