Reliability of Drinking Water: Risk Perceptions and Economic Value

Abstract

This paper estimates the monetary value of drinking water supply reliability in Alberta, Canada. We use the results of an online stated preference survey that elicited respondents’ experiences with, and numerically expressed future risk perceptions of, three types of water outages: short-term outages, longer-term outages and boiled water advisories. Respondents with non-zero risk perceptions were presented with alternative programs that reduced these risks, but increased their water bills. Using cost and other program attributes as explanatory variables, we measured the probability of supporting the programs. The survey results indicated that respondents have not experienced many water outages in the last 10 years, but expect outages to be more frequent over the next 10 years. Using the sample of respondents with non-zero beliefs in the likelihood of future water outages, we calculated a mean willingness to pay (WTP) per household of $71 per year for at least a 50% reduction in the likelihood of a short-term water outage. Results from spike models using responses of all respondents, regardless of their expressed risk perceptions, indicate a WTP of $46 per year for at least a 50% reduction in the risk of short-term water outages. We also used a control function approach to control for potential endogeneity associated with the use of elicited perceived risks in the model and found small differences in WTP estimates. These values provide policy makers with quantified benefits that can be compared to investment costs in traditional water treatment or source water protection.