The economics of water and sanitation

On Mon. March 4, 2013, Dr. Melanie O’Gorman (UW, economics) and Dr. Diane Dupont (Brock University, economics) led a discussion on the economics of water and sanitation infrastructure provision in Canada.

“If people are worried about the water quality, that must have some impact on their choices,” Dupont said.

Dupont and her colleagues recently conducted two large surveys of Canadians’ habits and beliefs surrounding drinking water. They found that Canadians are far less likely to drink their home tap water when they are concerned about its quality, and that the average Canadian household spends $249 on bottled water and $44 on water filters each year. But how much of this spending is due to health concerns?

“Per year, the amount that Canadians are willing to pay for tap water substitutes [that they believe lower health risks] is $590 million,” she said.

In other words, many Canadians would have more money to spend if they were not concerned about the quality of their tap water. This extra money is one of the many benefits considered in cost-benefit analyses about water infrastructure.

“A cost-benefit analysis (CBA) is one mainstream tool that economists and planners and policy makers use around the world to determine whether a given project, regulation, policy or any sort of intervention is worth it,” explained O’Gorman. “It’s a systematic cataloging of the benefits (the pros) and costs (the cons) of an undertaking.”

CBAs are especially helpful in making decisions about and changing perceptions of First Nations water system provision. It will cost roughly $4.7 billion to bring all First Nations water and wastewater systems up to standard, then keep up with servicing and population needs over the next ten years. This huge cost may lead the public to not care about the issue or think it is impossible to solve.

“But as economists, we have to say ‘that’s only the cost side of things – what we also have to think about is the benefit side of things,’ ” O’Gorman said.

Aside from being able to drink clean water, there are many benefits associated with improving First Nations water infrastructure. For example, having clean running water in one’s home could lead to increased labour earnings from time saved not hauling water. Internationally, studies show that a mere 0.3% increase in investment in household access to safe water is associated with a 1% increase in gross domestic product. Together, these findings suggest that the benefits of upgrading and maintaining First Nations water infrastructure may outweigh the price tag.

Questions asked this week:

Having to haul your own water likely leads to feelings of drudgery. Do cost-benefit analyses ever account for happiness or contentment? 

O’Gorman said that because happiness and contentment are subjective, they are not directly factored into CBAs. However, these emotions are likely involved in other judgments economists ask focus group members to make, which are used to evaluate financial benefits. “People are asked to put a dollar value on water and sanitation, and within that should be what you’re referring to – the drudgery of hauling water.” 

In Dupont’s survey, people were asked how much they were willing to pay for clean running water. What about the people who can’t afford to pay? Will they pay? If you don’t have the money, then you can’t make those decisions.

“[These surveys use] a wide sample with people of varying incomes, and then you can control for that income so that you’re actually taking into account that people do not have the ability to pay,” explained O’Gorman.

 

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