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Water markets and demand in Central American cities

Published online by Cambridge University Press:  11 May 2005

JON STRAND  and
IAN WALKER
JON STRAND
Affiliation:
Fiscal Affairs Department, International Monetary Fund, Washington, DC 20431, USA. E-mail: [email protected]
IAN WALKER
Affiliation:
ESA Consultores, Teguicgalpa, Honduras. E-mail: [email protected]
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Abstract

We analyse data from sample surveys of water use and prices for households in 17 cities in Central America and Venezuela. In some of the cities, almost all sampled households have tap water, but in others many rely on nontap (‘coping’) sources. Coping households use less than one-fifth as much water as metered tap households do, face average water prices ten times as high, are much poorer, and face substantial water hauling costs. Water demand functions are estimated for metered tap households and coping households separately and jointly. Increasing block rates complicate estimation on metered tap households. Using 2SLS, we find price elasticities of water demand, with respect to both average and marginal water price, of about −0.3, with average price giving the greater partial effect. Coping demand has price elasticity closer to −0.1, and is also negatively affected by increased hauling costs. Estimations on the joint data indicate that the water connection itself explains most of the difference between tap and coping consumption and indicate serious problems in such data pooling.

Type
Research Article
Information
Environment and Development Economics , Volume 10 , Issue 3 , June 2005 , pp. 313 - 335
Copyright
© 2005 Cambridge University Press

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Footnotes

This paper has been written as part of the project ‘Distributive effects of water pricing in Central America – findings and policy recommendations’, for the Inter-American Development Bank. The Bank staff have been very helpful throughout the development of this project, among them Jeff Vaughan, Diego Rodriguez, Walter Gomez, Javier Cuervo, and in particular Ricardo Quiroga and Sergio Ardila. Fidel Ordoñez (ESA Consultores) provided invaluable data assistance related to merging of the data, and Pablo Serrano (also ESA Consultores) provided water tariff data and other relevant information. We also thank Ariel Dinar, Julie Hewitt, Céline Nauges, seminar participants at the June 2002 World Conference for Environmental and Resource Economists, in Monterey, CA., and three anonymous referees and the editor, for helpful ideas and comments.