Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire
The Economic Value of Water SecurityDale Whittington, Claudia Sadoff, & Maura Allaire August 24, 2012
Intuition vs. Analysis• Our intuition tells us that the benefits of water are extremely large, that water is very valuable …• What does it tell us about the “costs” of infrastructure?
Intuition vs. Analysis• We want to raise donor funds for the sector (and convince Ministers of Finance of the importance of water security) based on intuition;• But we need analysis to invest the money wisely.
Intuition vs. AnalysisWhen is intuition likely to be the most useful?Best guide for decisions?
Background (1)Looking at both …- Regional water resources investments, &- Municipal piped water and sewer networks
Background (2) - Concepts• Economic value• User values vs. system values• Water security• Water Development Paths
Table of ContentsIntroductionThe Economic Value of Water Security: Basic ConceptsThe State’s Perspective on the Value of Water Security Overview The Role of the State Water in a Dynamic, High-Growth EconomyThe Perspective of the Household on the Economic Value of Reducing Water-related Risks Economic Value of Reducing Risks from Floods and Droughts Economic Value of Reducing Water-related Health RisksConcluding Remarks: What is to be Done?
Puzzle #1• Economists tell us water allocation problems are easy to solve.• Movement of water from “low-value uses” to “high-value uses” is cheap.• But States behave as if water is extremely valuable.
Puzzle #2 – Ex-post “Macro Evidence” on Investments• Investments in large-scale water resources management investments → economic growth, high returns (?)
Puzzle #3 – “Micro Evidence” from Households• Household demand (willingness to pay) is high to reduce water-related risks (floods, droughts, WASH diseases) – right?
Annual flood deaths in China, India, and Bangladesh year by year (1950-2010) 10,000,000 Bangladesh 1,000,000 China 100,000 India Flood Deaths 10,000 1,000 100 10 1 1940 1950 1960 1970 1980 1990 2000 2010 2020
Deaths in High-Income Countries by Age Cohort Population, 2004 Deaths in High-Income Countries by Age Cohort Population, 2004Death Rate (deaths per 100,000 of Age Cohort 16,000 WASH-related 12,000 HIV/AIDS Population) Resp. infect. 8,000 Other CMPN Other Injuries Cardio. Diseases 4,000 Other Non-comm. 0WHO 2008 Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80
Death Rate (deaths per 100,000 of Age Cohort Deaths in Low-Income Countries by Age Cohort Population, 2004 16,000 WASH-related 12,000 HIV/AIDS Population) Resp. infect. 8,000 Other CMPN Other Injuries Cardio. Diseases 4,000 Other Non-comm. 0WHO 2008 Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80
Distribution of Capital and O&M Expenses for Municipal Piped Network Services (amongDonors, Government, and Customers) vs. GDP
Puzzle #4• Almost no examples of a country that has experienced economic development that does not move toward more water security; and• Few examples of a country moving from water-insecurity to water security before GDP, economic growth increases.
→ There are not many fundamentallydifferent water development pathsfrom the households’ perspective,but there are from the State’s.
Piped Water Coverage:China, Brazil, India, Nigeria, & Egypt 100 90Piped Water & Sanitation Coverage 80 China 70 India (% Total Population) 60 Brazil 50 Nigeria 40 Egypt 30 20 10 0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Year
WASH-related mortality 1950-2050, by world region
Five reasons why water-related risks are so important to the State
Reason #1- Foreign threats- Some water-related threats are man-made.- Households and states can be confronted withwater-related risks from the non-cooperativebehavior of other states.
Reason #2 - Disasters- When large water-related disasters strike(e.g., floods, droughts, cholera epidemics), manycitizens experience losses at the same time.-The legitimacy of the State is called intoquestion if it fails to mobilize adequately tolarge-scale, complex disasters such asfloods, drought, and epidemics.→ Insurer of last resort
Reason #3 - Food-Food shortages may arise for a variety ofreasons, including naturaldisasters, floods, droughts, crop disease, anddisruptions in global trade.-If food is in short supply and food prices spike, theeconomic value of water increases.-Taking a static perspective on the economic valueof water in agriculture before a food shortageoccurs risks ignoring the issue that the State is mostconcerned about: ensuring that its citizens are fed.
Reason #4 – Coordination, Conflict Resolution- The State must coordinate the actions ofdifferent water users and resolve waterallocation conflicts among its citizens.- Failures of coordination and conflict resolutionare perceived as failures of the State.
Reason #5: Increasing returns to scale- The State is responsible for establishing theeconomic policies needed for less developedcountries to transition to a high-growtheconomy. - Improved water services and water resourcesmanagement have important (but difficult toquantify) roles to play in the transition to a high-growth economy.
Joseph Schumpeter“ … one essential peculiarity of the working of the capitalist system is that it imposes sequences and rules of timing … it is not sufficient to be right [about investment opportunities] in the abstract; one must be right at given dates. Business Cycles (1939)
Implications for Government (Ministries of Finance?)1) Transparency - Choice of water development paths - Clarification of tradeoffs - Accountability - Participation2) Teams of serious people – strategic planning3) Capacity building – creating strategic thinkers
Thank you!And send your comments/suggestions to: ProfDaleWhittington@gmail.com firstname.lastname@example.org
The different perspectives of theState & the household on water risks and the economic value of water
AttributesAttributes of Municipal Water Services of Municipal Water Services in selected Asian cities 350 Consumption/Capita (l/c/d) 300 250 Seoul 200 Hong Kong Ho Chi Minh 150 Kathmandu Colombo Quantity Quantity Quantity Quantity Quantity Quantity Quantity Delhi 100 Quality Quality Quality Quality Quality Quality Quality Jakarta Poor Service 50 High-Level Service (Very Insecure) (Secure) 0 Quality(%) - 20 40 60 80 100 -50 Seoul Hong Kong -100 Ho Chi Minh Quantity Delhi Colombo Reliable, 24-hour access (% connections) Jakarta Quality KathmanduNotes:Quantity, measured as domestic consumption per capita (liters per capita per day) Source: ADB 2004. Water in Asian Cities.Quality, measure as % of water samples passing bacteriological tests Source: ADB 1997 Second Water Utilities Data Book.Reliability, measured as % of connections having 24-hour access Source: ADB 2004. Water in Asian Cities.
Annual capital and per capita expenditures in theWater Industry in England and Wales, 1921-2015 (constant 2011 prices)
Quantity: 15m3Level A Reliability: 24hr/ day Quality: Excellent Quantity: 10m3Level B Reliability: 18hr/ day Quality: Good Quantity: 12m3 Reliability: 12hr/ dayLevel C Quality: Good Quantity: 5m3Level D Reliability: 3hr/ day Quality: Poor
Table 4 – Summary Comparison ofHousehold and State Perspectives Perspective on … Households State Economic value of water User value System Value Investment PlanningComparison of Steps alongand State Perspectives Responsible for choice between Table 4 – Summary Household a water development path alternative water development paths Economic Value of Disasters Ex-ante Ex-post (Economic value determined (Insurer of last resort) before disaster Non-cooperative behavior Conflicts with neighboring Conflicts with other states on households shared water bodies Dynamic, High-Growth Economy Reactive Proactive (Little an individual household (Responsible for the policy can do) framework, including water) Knowledge base about water Largely limited to very small Responsible for systems resources geographic scale, site specific understanding, but difficult
Concepts- Economic Value- Water Security- Water Development Paths