3 years ago

Comparing Contingent Valuation and Averting Expenditure Estimates of the Costs of Irregular Water Supply

We compare two methods—contingent valuation and averting expenditures—to measure the demand for improved water reliability in urban Jordan. Traditionally, averting expenditures (a revealed preference measure) have been considered a lower bound for demand relative to contingent valuation (a stated preference measure) estimates. We develop a theoretical model to show that this relationship critically depends on household perceptions. In our setting, this insight is important, because households appear to have relatively low confidence in both the reliability and quality of existing water supplies, even though water quality tests suggest that utility water is safe to drink from a microbial perspective. Averting expenditures, which reach 4% of monthly expenditures on average, include substantial purchases of non-network water sourced from water shops or tankers, as well as costs in terms of water collection time, storage and in-home treatment. In contrast, the contingent valuation responses, while correlated with coping costs, reveal low willingness to pay for increases in water reliability from the utility network. We attribute this departure from the traditional relationship between averting expenditures and contingent valuation to the lack of household confidence in the quality of utility-provided water. Our study thus adds to previous evidence in the literature, which points to the importance of consumer perceptions in determining demand for environmental improvements.

Publisher URL: www.sciencedirect.com/science

DOI: S0921800916316159

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