EfD Discussion Paper,
Environment for Development, University of Gothenburg

Abstract: To expand and maintain water supply infrastructure in rural regions of developing countries, planners and policymakers need better information on the preferences of households who might use the sources. What is the relative importance of price, distance and quality in a households decision to use a source? If a water source increases fees, perhaps to cover maintenance or planned replacement, how will the total amount of water abstracted and revenue collected change? Although the majority of households without improved water sources live in rural areas, there are surprisingly few studies addressing these questions outside major metropolitan areas or small towns. Using data from 387 households in rural Kenya, we model water demand along two dimensions of source choice and quantity demanded, the first such study in a rural context. The two choices of where to collect and how much water to collect are likely to be interrelated decisions, so we use a discrete-continuous (linked) demand model that nests a random-parameters source choice model inside an OLS demand equation. Households are sensitive to the price and proximity in choosing among sources, but are not sensitive to other source qualities including taste, color, health risk, availability, and risk of conflict. Estimates of the value of time implied by our model- still rare in developing countries- suggest that households value time spent collecting water at one-third of unskilled wages, on average. We generate the f irst elasticity estimates in the rural water demand literature; own-price elasticities range between-1.65 and-0.20, with a mean of-0.39, consistent with other estimates from small and large cities. Lastly, we show how the model can be used by policymakers to simulate pricing and service level decisions for cost recovery or other revenue goals.

Keywords: rural water supply; water source choice; value of travel time; water quality; Kenya; water demand elasticity; WASH; water collection; discrete-continuous

JEL-codes: Q25

Language: English

62 pages, March 1, 2019

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