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Econometrica Vol. 83 No. 5 2015

The Value of Free Water: Analyzing South Africa's Free Basic Water Policy

Andrea Szab�

Abstract

This paper analyzes South Africa's Free Basic Water Policy, under which households receive a free water allowance equal to the World Health Organization's recommended minimum of 6 kiloliters per month. I structurally estimate residential water demand, evaluate the welfare eects of free water, and provide optimal price schedules derived from a social planner's problem. I use a unique dataset of monthly metered billing data for 60,000 households for 2002-2008 from a particularly disadvantaged suburb of Pretoria. The dataset contains rich price variation across 18 dierent nonlinear tarischedules, and includes a policy experiment which removed the free allowance. I …nd that without government subsidy, the mean monthly consumption would decrease from 12.6 to 5.6 kiloliters, which is below the clean water consumption recommended by the WHO. 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 provider's revenue unchanged. This optimal tariwould also reduce the number of households consuming below the WHO-recommended level.

DOI
10.3982/ecta11917
Volume
83
Issue
5
Pages
1913-1961
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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