Demand for Piped and Non-piped Water Supply Services: Evidence from Southwest Sri Lanka

• Published in: Environmental & resource economics 2009-04, Vol.42 (4), p.535-549
• Main Authors: Nauges, Céline, van den Berg, Caroline
• Format: Article
• Language: English
• Subjects: Agriculture and Environment Q150; Demand; Demand estimation; Economic Development: Agriculture; Economic Development: Regional, Urban, and Rural Analyses; Economic Policy; Economics; Economics and Finance; Elasticity of demand; Energy; Environment; Environmental Economics; Environmental Law/Policy/Ecojustice; Environmental Management; Gas Utilities; Household water use; Households; Humanities and Social Sciences; Irrigation; Land Ownership and Tenure; Land Reform; Land Use; Natural Resources; Other Primary Products O130; Piped and non-piped water services; Pipelines; Price elasticity; Price policy; Pricing policies; Pricing policy; Renewable Resources and Conservation: Water Q250; Sanitation; Sri Lanka; Studies; Transportation O180; Water demand; Water supply; Water utilities; Water Utilities L950; Water utilization
• ISSN: 0924-6460; 1573-1502
• DOI: 10.1007/s10640-008-9222-z

In many countries water supply is a service that is seriously underpriced, especially for residential consumers. This has led to a call for setting cost recovery policies to ensure that the tariffs charged for water supply cover the full cost of service provision. Identification of factors driving piped and non-piped water demand is a necessary prerequisite for predicting how consumers will react to such price increases. Using cross-sectional data of 1,800 households from Southwest Sri Lanka, we estimate water demand functions for piped and non-piped households using appropriate econometric techniques. The (marginal) price elasticity is estimated at  − 0.15 for households exclusively relying on piped water, and at  − 0.37 for households using piped water but supplementing their supply with other water sources. The time cost elasticity for households relying on non-piped water only is estimated at  − 0.06 on average, but varying across sources. For both piped and non-piped households, we find evidence of substitutability between water from different sources. We discuss the implications of these results in terms of pricing policy.