Affordability and willingness to pay for Improved Water Supply: the Case of Nazreth Town

Course ID
Ethiopian Economics Association (EEA)
Alebel Bayrau

The provision of improved water supply service both in the urban and rural areas of the country is essential. Millions of people are facing problems of obtaining adequate potable water supply. When we see the coverage of improved water supply in both urban and rural areas of the country it is very low though it is relatively better in urban areas (about 32%, MoWR (2002)). This shows that much is still remaining to attain the full coverage of this basic service for the people of Ethiopia. Parallel to increasing the coverage we need to consider the efficient management of and proper use of the resources and sustainability of the service.

The policy for increasing the coverage as well as the proper use and sustainability of the service requires implementation of a cost recovery system, which can be either full or partial cost recovery. The issue of cost recovery particularly in supplying drinking water supply consists of affordability of the tariff, willingness to pay for the service and efficient management of the financial assets of the utility office. Therefore, in order to implement cost recovery system, we need to examine at least these three issues. This paper tries to examine and analyze the affordability and willingness to pay of the beneficiaries in urban areas of Ethiopia taking Nazareth town as a case study where new drinking water supply project is under construction.

Therefore, the objective of the paper is to examine the determinants of the willingness to pay of water consumers and to find out whether it is possible to introduce full cost recovery program to provide improved water supply in the urban areas of the country. We used contingent valuation method to examine the determinants of willingness to pay. The value elicitation method used in our study was bidding game, and a total of 307 sample households were covered during the survey, which was administered by using an in-person interview.

Unlike most studies, we used a censored least absolute deviation (CLAD) estimation for the empirical analyses, which does not need the normality and homoscadaciticity assumption of the distribution of the error term. We also used the probit model to see the effect of the explanatory variables on the choice of the household to the improved water service. The CLAD estimation result showed gender, income, monthly expenditure for water consumption, quality and time taken to fetch water from existing source significantly affects the respondent’s willingness to pay. While the probit estimation result indicated that wealth, income, education level, source the household is being used, quality and time taken to fetch water from the existing water source affect the choice of the respondents to the improved water service. The descriptive analyses result revealed that the mean WTP for improved water service is higher than the existing tariff. And the affordability analyses result also indicated that consumers are able to pay if they are provided the improved water supply service at a price equal to the average incremental cost of providing the improved water supply service

Corporate Author: Alemayehu Seyoum … [et al.] (editor)
Publisher: Ethiopian Economic Association (EEA)
Primary Descriptors: Water Supply

Secondary Descriptor: Water Service

Geographic Descriptors: Ethiopia, Nazreth
Cataloge Date: 02/27/2013
Broad Subject heading: Urban Development – Water
Call Number: 330.963 PRO 2005
Serial Key Title: Proceedings of the Second International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Volume: II
Publication date: 2013-05-27 23:05:00
Forum or Discussion date: 2013-02-27 15:01:58
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Alebel Bayrau

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