Abstract

Despite being politically sensitive, water tariffs are frequently administered without information about households' preferences for tariff structures. In this paper we examine the tariff preferences of 1,500 households in Kathmandu, Nepal. We first use a bivariate probit model to examine stated preferences for (1) an increasing block tariff (IBT) and (2) a positive fixed charge. We find that household preferences for IBTs and fixed charges are not easily explained by household socioeconomic and water use characteristics. Second, we asked respondents what they thought a fair water bill would be for a randomly assigned quantity of water. We model the responses as a function of both quantity and household socioeconomic and water use characteristics. While households appear to support a water tariff that is a function of the quantity of water used, we do not find evidence that households support a nonlinear, increasing price for water. Our results suggest that respondents desire affordable piped water services and water bills that are calculated fairly for everyone. Because the notion of fairness in Kathmandu varies, utility managers may have more latitude in choosing a tariff structure that focuses on other objectives, such as cost recovery, revenue stability, and economic efficiency.

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