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Abstract for:

"Contingent Valuation: Estimating the Willingness to Pay for Housing Services: A Case Study of Water Supply in Southern Haiti"
Whittington, D. et al. 1991. In Housing the Poor in the Developing World: Methods of Analysis, Case Studies, and Policy. Edited by K. G. Willis and A. G. Tipple, pp 189-207. Routledge.

For most households, access to a high quality, reliable source of water is one of the most important components of the bundle of goods which constitute improved housing. However, progress in improving the quality and quantity of water used by people in rural areas of the developing world has been unsatisfactory in two respects: (1) supplies which have been built are frequently neither used correctly nor properly maintained and (2) extension of improved service to unserved populations has been slow. Though this poor record is not the result of a single factor, a major impediment to improved performance is inadequate information on the response of consumers to new service options. The behavioural assumptions that typically underlie most rural water supply planning efforts are simple. It is commonly assumed that so long as financial requirements do not exceed 5 per cent of income, rural consumers will choose to abandon their existing water supply in favour of the ‘improved’ system. Several reviews by the World Bank, bilateral donors, and water supply agencies in developing countries have shown, however, that this simple model of behavioural response to improved water supplies has usually proved incorrect (Saunders and Warford, 1977; Churchill et al, 1987). In rural areas many of those ‘served’ by new systems have chosen to continue with their traditional water use practices.

If rural water projects are to be both sustainable and replicable, an improved planning methodology is required which includes a procedure for eliciting information on the value placed on different levels of service; and tariffs must be designed so that at least operation and maintenance costs (and preferably capital costs) can be recovered. A key concept in such an improved planning methodology is that of ‘willingness to pay’. If people are willing to pay the full costs of a particular service, then it is a clear indication that the service is valued (and therefore will most likely be used and maintained) and that it will be possible to generate the funds required to sustain and even replicate the project. Most attempts to incorporate willingness to pay considerations into project design have, however, been ad hoc, in large part because of the absence of validated, field-tested methodologies for assessing willingness to pay for water or any housing or service good in the context of rural communities in developing countries.

Two basic theoretical approaches are available for making reliable estimates of households’ willingness to pay, but neither has been adequately tested in the field. The first, ‘indirect’ approach, uses data on observed water use behaviour (such as quantities used, travel times to collection points, perceptions of water quality) to assess the response of consumers to different characteristics of an improved water system. Several modelling approaches are possible candidates here, among them varying parameter demand (Vaughn and Russell, 1982), hedonic property value (Freeman, 1979), and hedonic travel cost models (Cicchetti et al, 1972; Deyak and Smith, 1978). The second, ‘direct’ approach, is simply to ask an individual how much he or she would be willing to pay for the improved water service, for instance, a public standpost or yard tap. This survey approach is termed the ‘contingent valuation method’ because the interviewer poses questions within the context of a hypothetical market.

The contingent valuation method can be used to estimate households’ demand for improved housing services other than water supply (for example, improved sanitation). One of its advantages is that it can be used in situations in which a good or service is not currently available to a particular group of households. In such cases, the indirect approach is not feasible because there are no market data from which can be derived estimates of changes in the consumers’ welfare from the introduction of the good. Conventional wisdom has been that contingent valuation surveys are unreliable because of the pervasive feeling that interrogated responses by individuals to hypothetical propositions must be, at best, inferior to ‘hard’ market data, or, at worst, off-the-cuff attitudinal indications which might be expected to reflect efforts by individuals to manipulate the survey to their selfish ends (Cummings et al, 1986).

In the specific case of rural water supplies, the World Bank concluded more than a decade ago that ‘the questionnaire approach to estimating individuals’ willingness to pay has been shown to be virtually useless’ (Saunders and Warford, 1977). There was, however, little empirical
evidence to support this conclusion. Our research objective was to see if contingent valuation surveys could, in fact, be used in developing countries to develop useful estimates of willingness to pay for water services.

A village in southern Haiti was the field site of the study. After describing the specific research area in Haiti, existing water supplies and the water use practices of the population are summarised. The research design and field procedures are then described. The results of the analysis of the sample population’s contingent valuation bids lead general conclusions and remarks on policy implications of the research.

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