Identifying user demand
To operationalize the concepts of demand and demand-oriented projects, three problems need to be addressed:
(i) how to interpret demand for urban infrastructure services ranging from mainly public to mainly private goods;
(ii) how to organize the expression of demand for these varied services and technologies, by stakeholders who are differentially affected - the problem of "public choice";
(iii) what kind of financial or other resource commitments must be made by households to accurately reflect their intensity of demand.
Public 'goods': Many of the services provided in slum upgrading are of a communal or public good nature (access routes, footpaths, storm drainage, street lighting, environmentally safe waste disposal, marketplaces and community centers) - that is, the benefits are consumed jointly by all the residents in at least a local area. This implies that individual demand for such amenities cannot be expressed through willingness to pay in a market context. Public preferences for such services therefore have to be reflected either through a communal organization, such as a neighborhood association, or a formal governance process such as elective representation. These services also have a network character, which requires coordination across spatial areas.
Private Goods: On the other hand, land title, electricity connection, garbage removal, and housing improvements are private goods and the value placed on them by households and by providers can be mediated through a market.
Water and sanitation presents a very wide spectrum of potential service types.
Private facilities (on-site or in-house - also called "tertiary" services) for individual households can be provided entirely through a market mechanism;
Feeder or secondary systems (e.g., standpipes and public toilets, condominial sewers, small decentralized septic tanks and treatment facilities) serve groups of households (neighborhoods) in one community; and trunk or primary facilities serve multiple communities. At the neighborhood level, water and sanitation options have a mixed private-public character and imply greater downstream externalities, such as pollution of groundwater and public health impacts, than do individual facilities; therefore, combinations of private actions and neighborhood associations are needed to organize the expression of demand as well as the provision for feeder systems.
Trunk facilities are larger scale, mainly public goods linked to broader citywide networks and must be subject to formal sectoral planning and investment. However, provision of trunk sewerage should follow from assessments of demand at the household and the neighborhood levels - rather than the reverse order as has been traditionally the case - so that users' service preferences and willingness to pay can be taken into account in the location, sequencing, and financing of trunk investments. (1) This approach implies a radical cultural change on the part of most sector professionals.
Locus of decision-making
These distinctions by type of service imply that the appropriate locus of decision-making will vary:
Those services with mainly private impacts should be left to households to choose and finance.
Those affecting distinct neighborhoods should resort to communal decision-making.
Agencies with municipal- or metropolitan-wide jurisdictions will be needed to plan investments and organize financing for activities that have (positive or negative) impacts at the citywide level. (2)
To illustrate such variation in the management of different levels of urban services, consider the common scenario of a city where financial resources to provide infrastructure for expanding periurban settlements are grossly inadequate in the medium-term.
Only plan for public investment in the roads, bulk water supply, and sewerage mains up to the boundaries of the new unserviced settlements.
The neighborhood groups would organize themselves to provide the local infrastructure within their area - through various technical options for communal or privately connected water and sanitation, and access roads, depending on members collective preferences and willingness to pay.
The neighborhoods could contract for service extensions from the utility or other private contractors under minimum technical standards set by the utility. Where and when the investments would be made in the trunk facilities would depend on signals of effective demand and initiative from these neighborhoods. Both the PROSANEAR and Orangi projects represent variants of this scenario.