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Willingness-to-pay surveys

Willingness-to-pay surveys

In recent years the planning of water services has been greatly assisted by the spread of market surveys of potential users. These surveys aim to uncover users’ preferences for the proposed service, and what they would be willing to pay for it (hence the name, willingness-to-pay, or WTP surveys).

These surveys provide a variety of information about householders’ current sources of water; the volume of water used for different purposes; their preferences about the proposed service; what they are now paying for water, and what they would be prepared to pay for a specified improvement; and whether they would connect up to a new supply source. These surveys are equally applicable for sanitation and sewerage.

The accumulating evidence on WTP makes it possible to plot demand curves for water, which allow planners to design systems that are more responsive to what users really want, and improve the prospects of adequate cost recovery.

Conclusions to be drawn

It is difficult to generalise about the actual WTP values emerging from a variety of studies: the numbers depend on specific circumstances. However, the studies do agree on the factors that influence the demand for improved water supplies, and therefore WTP.

These include:

  • Socio-economic and demographic characteristics: incomes, occupation, purposes for which water is used, family size and composition, water use customs, etc.
  • Quality, reliability and cost of proposed water, compared to existing sources. In this context, quality includes appearance, taste and smell, as well as its microbiological composition. Cost takes into account the time and effort involved in carrying the water from a distant source, or queuing for it, and current cash outlays to private vendors, etc. The cost of connecting to the system is another factor.
  • Attitudes to government policy, and sense of entitlement. Stated government policies on water supply and pricing may define users’ attitudes – e.g. if politicians have promised free water, or if there is a clear and effective policy on subsidies. Various factors may lead people to feel they are entitled to free or cheap water.

Using WTP surveys for water is controversial, and their results can be challenged, e.g. for people with very low cash incomes, or where male and female members of the family have different attitudes. In addition there are the familiar criticisms of contingent valuation surveys (see below), of which WTP is a type, e.g. ‘strategic behaviour’ by respondents wishing to have the service, but either exaggerating, or understating, the amount they are willing to pay.

Acknowledging these problems, it can nevertheless be concluded that WTP evidence is useful, and provides an empirical basis for planning and cost recovery in this sector. It suggests that water is indeed an economic commodity in the eyes of many consumers, and that they are in principle prepared to pay for an improved service.

Data collection
Evidence on WTP is collected through Contingent Valuation (CV) surveys, so called because their replies are ‘contingent’ on the description of the (usually) hypothetical service or improvement being proposed. Conducting CV surveys is highly specialised and they should be contracted out to experienced practitioners. The growth of interest in CV in the USA led to the production of authoritative guidelines for the conduct of CV in a report to the US National Oceanic and Atmospheric Administration. The guidelines were drawn up principally for the estimation of non-use values of natural habitats, though they apply generally to other issues such as water. The CV method may be used in litigation, and substantial resources are required to conduct such a study. This should be borne in mind while reading the guidelines below, not all of which may be appropriate in their full rigour.
Samples
A professional statistician should be involved in the choice of the type and size of the sample. The sample size must be statistically significant, especially where split-samples are used.
Non-responses
A high non-response rate would make the survey results unreliable.
Interviews
Face-to-face interviews are usually preferable to other types, and telephone interviews are better than mail surveys. Major CV surveys should also pre-test for the effect of the interviewer. The effects of photographs on the respondents should be carefully explored.
Reporting
The survey report should contain information on the population sampled, the sampling frame used, sample size, the overall non-response rate and breakdown of non-responses, a copy of the questionnaire, and all communications with respondents. Data should be archived and accessible to interested parties.
Questionnaire design
Questionnaires should be piloted and pre-tested. There should be evidence that respondents understand and accept the description and questions in it. In general, the structure of the survey should err on the conservative side, i.e. options which underestimate WTP should be preferred to those which risk overestimating it, in order to improve the credibility of results. There should be a place for ‘no-answers’, the reasons for which should be explored.
Cross-tabulations
The survey should include a variety of other questions that help to interpret replies to the primary valuation question.  These might include income and other socio-economic indicators, location, awareness of environmental issues, etc.
Elicitation procedure
The WTP format is preferable to questions about compensation required,
e.g. in the event of a withdrawal, or denial, of services. The valuationquestions should be posed as a vote on a referendum (‘yes/no’, rather than an open-ended question about WTP). The mode of payment should be clear, realistic and acceptable.
Accurate description of issue
Sufficient information should be provided about the proposed change in service to enable respondents to frame realistic answers.
Expenditure implications
Respondents should be reminded that their WTP for the programme in question would reduce their ability to spend on other goods and services.

Further information: The Economic Appraisal of Environmental Projects and Policies: A Practical Guide, OECD, 1995. Values for the Environment,ODI, 1991.

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