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- Title
The Value of Free Water: Analyzing South Africa's Free Basic Water Policy.
- Authors
Szabó, Andrea
- Abstract
This paper analyzes South Africa's Free Basic Water Policy, under which households receive a free water allowance equal to the World Health Organization's recommended minimum. I estimate residential water demand, evaluate the welfare effects of free water, and provide optimal price schedules derived from a social planner's problem. I use a data set of monthly metered billing data for 60,000 households for 2002-2009 from a particularly disadvantaged suburb of Pretoria, with rich price variation across 20 different nonlinear tariff schedules. I find that the free allowance acts as a lump-sum subsidy, without large effects on water consumption. However, it is possible to reallocate the current subsidy to form an optimal tariff without a free allowance, which would increase welfare while leaving the water provider's profit unchanged. This optimal tariff would also reduce the number of households consuming low quantities of water, a desirable policy goal according to the WHO.
- Subjects
SOUTH Africa; WATER demand management; NONLINEAR pricing; DEVELOPING countries; WATER utilities -- Law &; legislation
- Publication
Econometrica, 2015, Vol 83, Issue 5, p1913
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA11917