Water Economics and Policy

Key performance indicators (KPIs) are widely recognized as a basis for evaluating water utility operations in developing countries and for designing both regulatory and managerial incentives that improve performance. A number of methodolgies can be used for assessing performance, with KPIs and overall performance indicators serving as more comprehensible and potentially more comprehensive than more technical empirical benchmarking studies. Data initiatives in low and middle income countries require resources that could be used for other activities with more immediate payoffs. However, regulatory oversight requires data analysis of trends, current performance, and realistic targets. Quantitative studies can provide clues regarding the extent of economies of scale, scope, and density, but policy-makers need much more detail and specificity than most scholars provide. Here, the focus is on information systems that provide accurate, reliable, and relevant data. KPIs represent the foundation for those developing, implementing, and responding to public policy — incentivizing water utilities in developing (and developed) countries to contain costs, improve service quality, and expand water access over the long run.

The first empirical application of an established framework for evaluating the adaptive efficiency of policy and project options — the Institutional Cost-Effectiveness Analysis (ICEA) framework — is documented in this paper. The application involves cost-effectiveness comparison of six projects for environmental water recovery in the Murray-Darling Basin, Australia, managed by the New South Wales (NSW) Government under three programs: The Living Murray Initiative; the NSW Wetland Recovery Program; and the NSW Rivers Environmental Restoration Program. Focussing primarily on one of the projects — the Darling Anabranch Pipeline Project (DAPP) — allows an in-depth account to be presented of the ICEA framework’s application. Abatement and transaction costs, and public and private subsets of these costs, were accounted for in the applications. The adaptive efficiency of the DAPP (a “water-saving project”) is found provisionally — i.e., without accounting quantitatively for institutional lock-in costs — to exceed that of the five other environmental water recovery projects (including two “market-purchase projects”) evaluated. This finding is significant given a tendency for economists to presume that environmental water recovery is generally achieved more efficiently through market-purchase projects. With water management, and environmental management more broadly, exposed to increasing uncertainty, adaptive efficiency will grow in importance as a metric for economic evaluation. The application of the ICEA framework documented in this paper can guide researchers in applying this metric to evaluations of projects and policies implemented in, or proposed for, this domain.

In this paper, we assess the environmental benefits derived from a wetland restoration plan. We assume that some of these benefits are “familiar” and thus fully perceived by the population; whereas those with more complex origins are “unfamiliar” and thus poorly perceived and valued. Well perceived benefits can often be assessed from carefully constructed conventional economic approaches based on preferences. However, the biases of these approaches become too significant for poorly perceived benefits which require alternative valuation methods. The “adapted” Habitat Evaluation Procedure (HEPa) “benefit” seeks to value environmental benefits through a non-monetary metric, the habitat unit. It evaluates marginal environmental changes using ecological indicators instead of preferences. Our aim is to test the possibility of combining a conventional monetary valuation method (choice experiment) with a non-monetary alternative valuation method (HEPa) to see whether such a combination could improve the assessment of benefits stemming from positive impacts of environmental policies. By so doing, we seek to contribute to a better integration of ecosystem services into the processes of planning, management, and decision-making regarding natural areas.

Water quality remains a significant issue and a source of serious health concern in the developing world. This paper investigates the water averting behavior at the household level by using a primary survey data from Siddharthangar, Nepal. While past studies have generally attributed averting behaviors to risk perception, we place a particular emphasis on the divergence between the household’s perception of their drinking water quality and the actual water quality level in driving the averting behavior. The findings indicate that the perception of the water quality affects a household’s decision to employ water treatment measures. Households that considered their water to be safe were less likely to treat their water. Furthermore, in addition to perception, the result also suggests the deviation between actual and perceived water quality level could also be a crucial element in the decision to employ water treatment measures. Households with divergence between risk perception and the objective water quality levels were less likely to treat their water and this result held across different specifications. In contrast, households with minimal deviation were more likely to employ treatment measures. Findings also suggest the source of drinking water, education level, income and the taste of the drinking water also drives the averting behavior.