The Economic Benefits of Potable Water Supply Projects to Households in Developing Countries

Abstract

In this report the authors argue that there is a need for both improved procedures and better practice in the estimation of the economic benefits of water supply projects. The authors discuss the concept of "economic benefits" in the water supply sector, and then present several approaches that can be used to estimate the economic benefits to households of potable water supply improvements. These include (1) procedures for calculating cost savings, (2) a procedure based on an assumed water demand function that can be used to estimate the consumer surplus associated with increased water consumption, (3) the contingent valuation method, and (4) the hedonic properly value model. The selection of the appropriate approach to use in a given situation will depend on the time and budget constraints of the analyst doing the economic analysis. However, in general, all of the recommended approaches require at least some primary data collection at the household level. Household water demand behavior is sufficiently complex, and existing data on household water use are so limited that it is rarely advisable to rely solely on desk-top studies to estimate project benefits. Primary' data collection (including household surveys) is necessary during project preparation and appraisal in order to improve the quality of benefit estimates.