Demand for Water Quality

Paper Session

Friday, Jan. 6, 2017 2:30 PM – 4:30 PM

Swissotel Chicago, Zurich G
Hosted By: Association of Environmental and Resource Economists
  • Chair: Al McGartland, U.S. Environmental Protection Agency

The Economics of United States Water Quality Regulation: What We Need to Know and How We Can Learn It

David Keiser
,
Iowa State University
Catherine Kling
,
Iowa State University
Joseph Shapiro
,
Yale University

Abstract

Over the last four decades, the U.S. has heavily invested in federal initiatives to control surface water pollution. For example, the Clean Water Act of 1972 mandates abatement at many industrial and other plants with a cost exceeding a trillion dollars. On a smaller, yet still significant scale, efforts to control pollution from agriculture through federal programs such as the Conservation Reserve Program have exceeded fifty billion dollars. Despite these large investments, little is known regarding the actual effect of these policies on water quality, health, social welfare, and other important outcomes. This paper reviews the literature, evaluates the key knowledge gaps, and describes promising recent areas of research on efforts to assess water quality policies, including the development of new data sources, the application of new approaches within integrated assessment models, and a range of data-driven approaches.

Credit Constraints, Discounting and Investment in Health: Evidence From Micropayments for Clean Water in Dhaka

Raymond Guiteras
,
North Carolina State University
David Levine
,
University of California-Berkeley
Thomas Polley
,
Duke University
Brian Quistorff
,
University of Maryland

Abstract

Low rates of adoption of and low willingness to pay for preventative health technologies pose an ongoing puzzle in development economics. In the case of water-borne disease, the burden is high both in terms of poor health and cost of treatment. Inexpensive preventative technologies exist, but willingness to pay (WTP) has been observed to be low in a number of contexts. We study the effect of time payments (micro-loans or dedicated microsavings) on WTP for a ceramic water filter among 400 households in slums of Dhaka, Bangladesh. We use a modified Becker-Degroot-Marschak mechanism to elicit WTP from each household across several different payment plans. We obtain valuations from each household across all payment plans, which allows us to investigate the mechanisms behind differences in WTP across plans. We find that time payments significantly increase WTP: compared to a lumpsum up-front purchase, median WTP increases 83% with a six-month loan and 115% with a 12month loan. Similarly, coverage can be greatly increased: at an unsubsidized price (50% subsidy) coverage is 12% (27%) under a lump-sum but as high as 45% (71%) given time payments. We use our rich within-household WTP data, the design of the payment plans, and a simple structural model of time preference and credit constraints to investigate the mechanisms. We find that households are patient with respect to consumption of health inputs, but do exhibit impatience with respect to general consumption. We find strong evidence for the presence of credit constraints, and suggestive evidence of savings constraints.

(Not So) Gently Down The Stream: River Pollution and Health in Indonesia

Teevrat Garg
,
University of California-San Diego
Stuart E. Hamilton
,
Salisbury University
Jacob Hochard
,
East Carolina University
Evan Plous
,
Columbia University
John Talbot
,
Eastern Shore Regional GIS Cooperative

Abstract

Waterborne diseases are the leading cause of mortality in developing countries. We emphasize a previously ignored cause of diarrhea - upstream river bathing. Using newly constructed data on upstream-downstream hydrological linkages along with village census panel data in Indonesia, we find that upstream river bathing can explain as many as 7.5% of all diarrheal deaths. Our results, which are net of avoidance behavior, show no effect of trash disposal on diarrheal infections. Furthermore we find that individuals engage in avoidance behavior in response to trash disposal (visible pollutants) but not river bathing (invisible pollutants). We conduct policy simulations to show that targeting upstream individuals could generate substantial environmental and health savings relative to targeting downstream individuals. This provides a potential roadmap for low- and middle-income countries with limited resources for enforcement of water pollution.

The Effects of Information Provision on Avoidance Behavior: Evidence From the Flint, Michigan Drinking Water Crisis

Peter Christensen
,
University of Illinois-Urbana-Champaign
David Keiser
,
Iowa State University
Gabriel Lade
,
Iowa State University

Abstract

In April 2014, the city of Flint, Michigan switched its drinking water supply from the Detroit water system to the Flint River as a means to help ease the city’s financial troubles. This change in water supply unknowingly caused a major health crisis in the city. Over the past year and half, it has been revealed that the switch exposed Flint residents to dangerously high levels of lead, culminating in a declaration of a state of emergency in October 2015. In this paper, we use the events surrounding the Flint water crisis to explore three primary research questions. First, how does information provision affect avoidance behavior? Second, how does this behavior vary in the short-run, when risks are more uncertain, versus the long-run, as risks become more certain? Third, in the case of Flint, what are the economic damages from this informational failure and how does avoidance behavior help mitigate these damages? To answer these questions, we develop a theoretical model of avoidance behavior under uncertainty to make predictions of how individuals trade off costly avoidance behavior with costly health damages. We test our predictions using differences-in-differences research designs that examine weekly retail sales of bottled water and water filters for Flint versus other U.S. locations as well as unique housing sales data for Flint and surrounding areas using restricted data from Zillow.
Discussant(s)
Al McGartland
,
U.S. Environmental Protection Agency
Molly Lipscomb
,
University of Virginia
Mushfiq Mobarak
,
Yale University
Lori Bennear
,
Duke University
JEL Classifications
  • Q5 - Environmental Economics