A smart grid is a transactive grid.
- Lynne Kiesling
Why is Willingness to Pay for Water Surprisingly Low in Urban Jordan?

Via Water Policy Online, an interesting report on a surprising tendency for people in Jordan to place a low monetary value on a reliable supply of water:

Willingness to pay for a reliable supply of water among urban households in Jordan—one of the most water-scarce places on the planet- seems surprisingly low. What are the lessons for policymakers when evaluating investments in improved water infrastructure? Marc Jeuland explains.

Jordan, a stunning land with a long and rich history, has one of the lowest levels of water resource availability per capita.  Depleting aquifers and leaky pipelines and infrastructure have exacerbated the country’s status as one of the world’s most water-scarce countries.

Water availability is expected to become a bigger problem over the next two decades as population increases and climate changes deplete rainfall. The refugee influx from Syria has added to population pressures; Jordan hosts 657,000 refugees of the 4.9 million refugees registered with UNHCR.

Water scarcity in urban Jordan is particularly acute. Urban industries and households receive less than half of total water supply. Households in the cities of Amman and Zarqa report that utility rationing provides them with water 8-9 days per month on average.

Yet, our research indicates that urban households have a surprisingly low willingness to pay for an assured and reliable supply of water. What might explain this behaviour? What bearing does it have for policy-makers evaluating large investments such as the $275 million investment in improved infrastructure in Zarqa by the Millennium Challenge Corporation (MCC), an aid agency funded by the US Government?

Assured water supply improves overall quality of life

Research has shown that households with access to dependable water supply benefit from time savings, productivity, and positive changes in quality of life. Access to reliable and convenient sources of water reduce dependence on distant, and often expensive sources of water; this improved access to water lowers household expenditures and costly coping behaviours.

Water rationing—as practised in the cities of Amman and Zarqa and elsewhere in water-scarce countries in the Middle East–results in high coping costs for households, many of whom purchase non-network water from expensive alternative sources (See Figure 1).  Such sources include water shops that sell treated and packaged water, and to a lesser extent, tankers.  Households also invest heavily in water storage that allows them to smooth water consumption over periods of interrupted supply, and in water treatment, due to concerns over water quality and safety that arise due to intermittency in the utility network that increases the risk of infiltration and contamination.

Non-network water expenditures represent the highest of these coping costs, at two percent of average monthly expenditures. For the average household in our survey, the total of all categories of water-related coping costs reaches 18 JD or four percent of average monthly expenditures.

Coping costs are also highly regressive; poor households pay a much higher proportion of their income, especially for non-network water alternatives, and to a lesser degree, for water storage.

In this context, our research study attempted to answer the question: how much are households willing to pay for improved reliability of water supply?  Improved reliability can be conceptualised as an increase in the number of hours of supply. Given the high coping costs and widespread problems with unreliable network water in Jordan, we initially hypothesised that willingness to pay would also be high.

Coping costs are also highly regressive; poor households pay a much higher proportion of their income, especially for non-network water alternatives, and to a lesser degree, for water storage.

Willingness to pay not as high as expected

However, studies show that household willingness to pay is much lower than coping costs, which is not the typical relationship that economists expect. Economists generally believe that coping costs are a lower bound for the value of improved water, largely because households are often limited in the technologies they can use to cope. That is, we know that households are at least willing to incur those coping costs to improve their situation, but they may be willing to spend much more to obtain even better supply.

There are two reasons why this may not be true in urban Jordan, however. First, households have already incurred many of their coping costs, by investing in storage and treatment infrastructure. These costs are sunk, and households perhaps rightly consider that improved water supply would therefore not lead to any savings on their part, at least not in the foreseeable future.

Second, and perhaps more importantly, households do not appear to view network and treated shop water as comparable (substitutable) sources. Specifically, many believe that network water is unsafe to drink, and therefore purchase shop water instead. Improving network reliability would perhaps not obviously improve quality or alleviate health concerns that households have.

Do economic analyses of infrastructure typically overestimate the benefits of improved network reliability?

This result has important policy implications. First, it suggests that the benefits of improved water reliability may in some circumstances be overestimated if one approximates them using coping costs (as is common in the literature). This might lead to overinvestment, or alternatively, in lack of realisation of expected benefits.

Second, because we find no evidence that shop water is of higher quality than network water based on tests conducted at the household level (in fact, it seems that the opposite may be true), household beliefs about the water quality advantage of more expensive sources may be misplaced. Thus, there may be significant gains simply from educating people about the relative safety of network water (since they might save considerable money). And while behaviours may shift in the longer term if households learn about these benefits, there are reasons to be sceptical that shifts in such deep-rooted perceptions will occur without additional intervention.

These recommendations are particularly important given the recent investment by the MCC in the city of Zarqa. The Jordan Compact, successfully constructed over 1,100 km of water and wastewater pipelines in Zarqa, but placed a relatively light focus – and one primarily aimed at promoting water conservation – on household education. The MCC investments are likely to improve the reliability of water supply, but this may not translate into the cost savings that were anticipated if household behaviour does not shift as well.

Marc Jeuland is faculty at the Duke University, Sanford School of Public Policy, Duke Global Health Institute and an adjunct senior research fellow at the Institute of Water Policy, Lee Kuan Yew School of Public Policy, National University of Singapore. 

This op-ed is based on the research paper Comparing Contingent Valuation and Averting Expenditure Estimates of the Costs of Irregular Water. All data and tables are sourced from the paper. 

This entry was posted on Saturday, January 13th, 2018 at 7:27 pm and is filed under Uncategorized.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

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Grid Unlocked is powered by two eco-preneurs who analyze and reference articles, reports, and interviews that can help unlock the nascent, complex and expanding linkages between smart meters, smart grids, and above all: smart markets.

Based on decades of experience and interest in conservation, Monty Simus and Jamie Workman believe that a truly “smart” grid must be a “transactive” grid, unshackled from its current status as a so-called “natural monopoly.”

In short, an unlocked grid must adopt and harness the power of markets to incentivize individual users, linked to each other on a large scale, who change consumptive behavior in creative ways that drive efficiency and bring equity to use of the planet's finite and increasingly scarce resources.