The Welfare Costs of Unreliable Water Service

Posted: 9 Jun 2011

See all articles by Lucas W. Davis

Lucas W. Davis

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Brian Baisa

Yale University - Faculty of Arts & Sciences

Stephen W. Salant

University of Michigan; Resources for the Future

William Wilcox

affiliation not provided to SSRN

Date Written: May 1, 2010

Abstract

Throughout the developing world, many water distribution systems are unreliable. As a result, it becomes necessary for each household to store its own water as a hedge against this uncertainty. Since arrivals of water are not synchronized across households, serious distributional inefficiencies arise. We develop a model describing the optimal intertemporal depletion of each household’s private water storage when it is uncertain when water will next arrive to replenish supplies. The model is calibrated using survey data from Mexico City, a city where many households store water in sealed rooftop tanks known as tinacos. The calibrated model is used to evaluate the potential welfare gains that would occur if alternative modes of water provision were implemented. We estimate that most of the potential distributional inefficiencies can be eliminated simply by making the frequency of deliveries the same across households which now face haphazard deliveries. This would require neither costly investments in infrastructure nor price increases.

Keywords: Water Supply Uncertainty, Water Storage, Distributional Inefficiency

JEL Classification: D45, O12, O13, Q25, Q28

Suggested Citation

Davis, Lucas W. and Baisa, Brian and Salant, Stephen W. and Wilcox, William, The Welfare Costs of Unreliable Water Service (May 1, 2010). Journal of Development Economics, Vol. 92, No. 1, May 2010, Available at SSRN: https://ssrn.com/abstract=1860171

Lucas W. Davis (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
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Brian Baisa

Yale University - Faculty of Arts & Sciences ( email )

New Haven, CT 06520
United States

Stephen W. Salant

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States
313-764-2370 (Phone)
313-764-2769 (Fax)

Resources for the Future ( email )

1616 P Street, NW
Washington, DC 20036
United States

William Wilcox

affiliation not provided to SSRN ( email )

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