Analyses of Affordability and Determinants of Willingness to Pay for Improved Water Service in Urban Areas, Strategy for Cost Recovery. (A Case Study of Nazareth Town, Ethiopia)

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Addis Ababa University


The provision of improved water supply service both in urban and rural areas of the country is essential. Millions of people are facing problems of obtaining adequate potable water supply. When we see the coverage of improved water supply in both urban and rural areas of the country it is very low, though it is relatively better in urban areas. This shows much is remaining to attain full coverage for the people of Ethiopia. Parallel to increasing the coverage we need to consider the proper use of the resources and sustainability of the service The policy for increasing the coverage as well as the proper use and sustainability of the service requires implementation of a cost recovery system, which can be either full or partial cost recovery. In order to implement cost recovery system we need to examine the affordability and willingness to pay of the beneficiaries. Therefore, the objective of this paper is to examine the determinants of the willingness to pay of water consumers and to find out whether it is possible to introduce full cost recovery program to provide improved water supply in urban areas of the country. We used a contingent valuation method to examine the determinants of willingness to pay. The value elicitation method used in our study is bidding game. The total number of households surveyed is 307, and an in-person interview was used to administer the survey. Unlike most studies, we used a censored LAD estimation for the empirical analyses, which does not need the normality and homoskedacity assumption of the distribution of the error term. We also used the probit model to see the effect of the explanatory variables on the choice of the household to the improved water service. The CLAD estimation result showed gender, income, monthly expenditure for water consumption, quality and time taken to fetch water from existing source significantly affects the respondent’s willingness to pay. While the probit estimate result showed that wealth, income, education level, source the household is being used, quality and time taken to fetch water from the existing source affect the choice of the respondents to the improved water service. The descriptive analyses result revealed that the mean WTP for improved water service is higher than the existing tariff. And the affordability analyses result also indicated that consumers are able to pay if they are provided the improved water service at a price equal to the average incremental cost of providing the improved water supply service



Improved Water Supply Service