Using the contingent valuation method (CVM), the study sets out to analyze determinants of households’ WTP, estimate total WTP, and derive aggregate demand and aggregate benefit for improved water supply service. The study used cross-sectional data collected from 240 households in Addis Ababa, the capital city of Ethiopia through closed-ended value elicitation format with open-ended follow up questions. The empirical models adopted by this study are probit and tobit models. The tobit model is used to identify socio-economic factors that affects the WTP of households and to estimate aggregate demand and aggregate benefits for the proposed improvement in water supply service. The probit model is used to calculate the mean WTP for the closed-ended format.
The mean WTP values are 15.34 and 20.20 cents per Baldi (a 20 liter bucket) for the improved water supply service as calculated from the tobit and probit model, respectively. The total WTP amount from the sample of 126,108 households in Addis Ababa sub-cities was found to be Birr 154, 198.26 per day.
The area under the demand curve represents the gross value of consumers’ surplus which is Birr 181,935.36 per day if water is considered as a free good. But water is an economic good and if a new tariff rate of the authority proposes to be 8 cents per Baldi the consumers’ surplus will be reduced to Birr 94,397.85 per a day. The rest of the benefit is distributed to the water authority Birr 80,364.96 in the form of revenue and Birr 7,172.55 as a dead weight loss per day.
The tobit model shows that there are several explanatory variables that affect the WTP value. Income of the household, sex of the respondent dummy (female = 1), education (both secondary and tertiary level), households’ year of stay, households not using tank as a storage, wealth of a household, occupation of the respondent dummy (employed = 1) , households satisfaction with the existing service, and location of the study site (Addis Ketema) have positive and significant effects on willingness to pay. Family size has negative and significant effect on willingness to pay.
The policy implication of the study is that the inhabitants of Addis Ababa city are willing to pay for improved water supply service if it is provided for an affordable price. In addition, policymakers need to be aware that socio-economic characteristics and water use practices of households influence the willingness to pay for better water services
Corporate Author: Getnet Alemu and Edilegnaw Wale (Editor) & Ethiopian Economic Association/Ethiopian Economic Policy Research Institute
Publisher: Ethiopian Economic Association (EEA)
Primary Descriptors: water service
Geographic Descriptors: Ethiopia, Addis Ababa
Cataloge Date: 02/27/2013
Broad Subject heading: Water natural resources
Call Number: 330.963 PRO 2009
Serial Key Title: Proceedings of the Fifth International Conference on the Ethiopian Economy
Publication catagory: International Conference
Content type: EEA Publication
Publication date: 2013-12-27 23:09:00
Forum or Discussion date: 2013-02-27 15:02:14
Place of publication: Addis Ababa, Ethiopia
Type of material: Book
Current frequency: Annualy
Author: Kinfe G. Egziabher and Berhanu Adnew