Utilities as Creditors: The Effect of Enforcement of Water Bill Payment in Zambia (Job Market Paper) 

Abstract: Policy goals of increasing household access to piped water and cost recovery for utility providers are often at odds. Nonpayment of utility bills is a common constraint to improving the quality of utility service, yet nonpayment is widely tolerated, and households often accumulate significant debt to the utility provider. I study the effect of increases in enforcement of water bill payment through supply disconnections in Livingstone, Zambia. I develop a dynamic model of household monthly payments and accumulation of arrears, which determines the household's probability of disconnection. I show that higher levels of enforcement increase the optimal payments for connected households but reduce a household's willingness to reconnect to the water utility when disconnected. I empirically test this model using an event-study framework of exogenous increases in enforcement capacity that occur during administrative rezoning events, which reduce the number of households that one enforcement agent is responsible for. I find that low-income households are 20 percent more likely to be disconnected from their water supply after rezoning events, while high-income households experience no change in disconnections. Households are more likely to make a payment following rezoning events, but I do not find strong evidence of increases in total revenue collected per customer. The results suggest that high enforcement of water bill payment toward credit-constrained households may be ineffective and leads to reduced piped-water access.

Household Willingness to Pay for Piped Water Service Quality: Evidence from Zambia

Abstract: Public utilities in developing countries are often characterized by poor supply quality and low levels of revenue collection. Poor supply quality may reduce water demand among households and revenue recovery by the water utility, which may impede efforts to expand access to water utilities. This paper estimates willingness to pay (WTP) for utility quality using both stated and revealed preference approaches. Revealed preference estimates of WTP for piped-water quality improvements may be biased due to endogeneity of quality and demand and are unable to distinguish between supply-side and demand-side reductions in water use when piped-water supply is intermittent. Therefore, I compare WTP estimates based on demand responses to quality with those derived from payment responses to quality. Because bill payments are made two months after consumption occurs, I am able to determine household payment responses to current period quality which are independent of current period consumption. Revealed preference estimates based on payments and demand both show that households are willing to pay for quality improvements when experiencing low chlorine and poor color, which likely indicates low pipe pressure observed by the household and an inadequate supply of water. I find that demand WTP estimates are smaller than payment WTP estimates, and both are generally smaller than stated preference results. Revealed and stated preference results show that households are willing to pay for higher piped-water supply quality but not more than an additional 1.40 USD per month, which represents 12 percent of the average bill.

Water Sharing Under Increasing Block Pricing

Abstract: Pricing of piped water in developing countries has been a topic of significant policy debate. Many low-income countries utilize an increasing block tariff (IBT) to promote efficient use of water and provide a subsidy to low-consumption households. However, low-income households in developing countries often share the same water connection, which undermines the subsidy objectives of the IBT. Water utilities are increasingly transitioning to full metering of water connections, but little empirical evidence exists on the effect of metering on water access and cost recovery, particularly in the context of widespread water sharing. I study the transition from unmetered to metered connections using an event study of large-scale metering campaigns in Livingstone, Zambia. Metering raises the marginal price that households pay for water but also raises the price of sharing by reducing the share of a household's neighbors that can provide free water through their unmetered connection. I find that metering produces significant revenue gains for the water utility. Revenue increases by more than 30 percent after metering events in areas that were metered. Metering events also result in re-connections for households that were disconnected due to non-payment. The share of households that are disconnected decreases by approximately 30 percent among low-income households after metering. This study provides suggestive evidence that sharing households transition to use of individual connections after metering. The welfare effects of metering for households, however, is not clear due to the simultaneous change in the price of an individual connection and the price of sharing.