MEASURING CONSUMER SURPLUS BENEFITS OF WATER SUPPLY EXTENSIONS IN DEVELOPING COUNTRIES1

Abstract

ABSTRACT: For investments in water mains serving new households, consumer surplus benefits may far outweigh those measured by revenues recoupled from user fees. While consumer surplus might be capitalized in the value of sites with access to mains, empirical attempts to measure such capitalization have not proved inveriably successful. In this note an alternative technique based upon the direct estimation of the demand curve is applied. An analysis of Penang Island, Malaysia indicates that the consumer surplus benefits are one and one‐half times greater than the revenues recoupled through user fees. The applicability of this technique to cost‐benefit analysis of water supply investments is discussed.