The Value of Free Water: Analyzing South Africas Free Basic Water Policy
نویسندگان
چکیده
This paper analyzes South Africas Free Basic Water Policy, under which households receive a free water allowance equal to the World Health Organizations recommended minimum of 6 kiloliters per month. I structurally estimate residential water demand, evaluate the welfare e¤ects of free water, and provide optimal price schedules derived from a social planners problem. I use a unique dataset of monthly metered billing data for 60,000 households for 2002-2009 from a particularly disadvantaged suburb of Pretoria. The dataset contains rich price variation across 20 di¤erent nonlinear tari¤ schedules, and includes a policy experiment which removed the free allowance. I nd that without government subsidy, the mean monthly consumption would change very little. However, it is possible to reallocate the current subsidy to form an optimal tari¤ without a free allowance, which would increase welfare while leaving the water providers revenue unchanged. This optimal tari¤ would also reduce the number of households consuming below the WHO-recommended level. I would like to thank Amil Petrin and Patrick Bajari for their advice and support. I also thank Tom Holmes, Kyoo il Kim, Minjung Park, Chris Timmins, Gergely Ujhelyi, several friends and seminar participants at the University of Minnesota, as well as seminar participants at Georgia State, Texas A&M, University of Calgary, University of Houston, University of Maryland (AREC), RPI, and NEUDC 2009 for comments and suggestions. I am grateful for the assistance and cooperation of Fazel Sheri¤, Director of Water and Sanitation at the City of Tshwane, and Pieter Avenant, Chief Financial O¢ cer of Odi Water, without whom this project would not have been possible. All views expressed in this paper are the authors and were not endorsed by the City of Tshwane or Odi Water.
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