Water Economics and Policy

In developing countries, the Sustainable Development Goals (SDG) set by the United Nations and the expectations expressed by modern local populations call for universal water access through individual connections (IC), to be achieved by 2030. An ambitious target such as this presents the challenge of how best to achieve the goal of funding high-quality but expensive water supply systems, to serve populations with low incomes. This raises the question of the assessment of the relevant households’ willingness to pay (WTP) for improved water service in rural areas, in particular in the context of developing countries. This paper examines this issue using a case study in Tunisia. As with other developing countries, Tunisia faces difficult challenges: the increasing demand for water and the inherent cost that is involved must be met whilst climate change is likely to increase the pressure on already stressed resources.

The approach applied in this paper is to assess the households’ WTP using a contingent valuation (CV) method in a dedicated field household survey in Central Tunisia. The particular governorate in which the survey was conducted was facing at the time of this study high social expectations, in particular, coming under increasing demand from inhabitants of rural communities to be individually connected to water supplies in the same way as their urban counterparts who were served by SONEDE, the national utility company.

The results of the survey reveal that non-SONEDE-piped households were not willing to pay the amount required in order to have an individual connection (the average bid was USD 443 whereas the expected contribution is above USD 800). It was found that a household’s WTP for an individual connection had a direct relationship with its trust in the current water management model, alternative modes of supply, and its socio-economic characteristics. However, if already connected, households would be willing to pay more than their current water expenses, although the amount they were willing to pay was still lower than the sustainable water cost enabling long-term maintenance of the system.

SONEDE-piped households stated a clear WTP the amount required to keep water services for the future (average bid of USD 14 to add to their current quarterly water bill of USD 14). Based on these results, this paper concludes by highlighting several policy implications.

This paper applies a microeconomics-based stylized model to identify the optimal modal split of water supply infrastructure in regions of the Global South against the background of the Sustainable Development Goal (SDG) No. 6. Based on an assumed linear city, we calculate the optimal modal split of water supply. Not all water users need to be connected to a centralized, pipeline-based water supply network from an economic perspective. We calculate the optimal tap density and the optimal spatial range of households served by non-mobile or mobile water vendors for the area with unconnected households. The analysis is made for the case of water requirement (totally inelastic water demand), and afterward, the research will be extended to the case of an elastic water demand based on a Stone–Geary utility function to incorporate price and income effects. The result, an “optimal modal split” between network-based water supply and other supply options, has main implications on water tariffication. While the volumetric elements of the tariff are based on the marginal costs, the level of the access fee mainly depends on the subsistence level of water.

Development of groundwater-based irrigation technology resulted in the emergence of groundwater markets in many parts of India. Due to the localized nature of the markets, it deems important to capture influence of spatial variation in the functioning of the market. This study is carried out to unearth the factors influencing water selling decisions of farmers in water abundant regions of India taking the case of Assam in Eastern India. Using field-level data from two districts of the state and with the help of logit regression analysis, the study examines the determinants of water selling decision of farmers. The results have shown that excess capacity of the pump sets, availability of diesel operated pump sets and conveyance facilities, depth of the boring, caste of the farmer, etc. are some of the significant factors influencing the probability of water selling decision of a farmer. The results, on the whole, indicate that water selling decision of a farmer in water abundant regions is the result of a combined effect of a number of socio-economic, farm specific and tube well specific factors.

Investments to rehabilitate and modernize irrigation systems as well as price subsidies to incentivize adoption of drip and sprinkler irrigation technologies are promoted to enhance agricultural productivity and sustainability of on-farm water use across India. We examine the effect of these two policies on farmer irrigation choices in surface irrigated farms in Madhya Pradesh. A logistic regression based on novel survey data from 918 farmers estimates a 3% reduction in the probability that farmers will adopt drip or sprinkler technologies if they are located on farms serviced by irrigation schemes where 30% or more of the irrigated area was rehabilitated. Results also reveal that, on average, farmers are 12% more likely to continue using irrigation technologies if they had adopted them prior to the start of rehabilitation works. Quantitative results are complemented with semi-structured interviews of farmers to better understand drivers of adoption, which suggest that: (1) open, gravity canals do not always restrict drip or sprinkler adoption, (2) water scarcity appears to be a strong driver for farmers to adopt, despite financial constraints, (3) socio-economic factors such as caste, education, and house ownership does not seem to influence a farmers’ choice of adoption, and (4) social networks provide a stronger incentive for adoption as smallholders struggle to access government subsidies. Understanding the role of social networks in influencing the irrigation practices of farmers can complement supply-side infrastructure investments and financial incentive policies to enhance the water security of smallholders facing climatic risks to food production.

Valuing water is difficult and contentious owing to water’s physical, political, and economic characteristics. Combining household-level and county-level data at the county level could clarify the responsibilities of both the government and users. In the Thousand Island Lake Water Distribution Project (TILWDP), the upstream ecosystem services provider, Chunan County, is assumed to sustain a tremendous opportunity cost due to the extremely strict environmental protection requirements of the project. To estimate the opportunity cost of supplying fresh water that meets the standards of the National Primary Drinking Water Regulations, a synthetic control model is introduced, and county-level macroeconomic data are used. A funding gap was estimated in the current government-financed situation. Meanwhile, willingness to pay is calculated based on household-level data collected in the downstream area. The estimate indicates that the combination of ecological compensation payments from governments and downstream stakeholders’ willingness to pay for water services could completely cover the upstream service provider’s opportunity cost. Specifically, the related central and downstream governments would need to take on approximately 1/3 of the total cost, while the users from the downstream area would take on the rest. The proposed policies include adopting government–user joint-financing payment for ecosystem services (PES) schemes for regional ecological and environmental cooperation in China, implementing diversified payment vehicles, launching additional environmental education projects, etc.

This paper highlights challenges of water access in towns and cities of the global South and explores potential policy responses. These challenges are not new, although, we argue that they have been underestimated by policy makers due to a focus on global data, thus, resulting in decision makers paying insufficient attention to these problems. Policies need to be based on a more accurate assessment of challenges, specifically the need for continuous and affordable water service, and the need to provide services to informal settlements. We share findings from research on 15 cities across Latin America, Asia, and Africa.