In a market system, economic values of water, defined by its price, serve as a guide to allocate water among alternative uses, potentially directing water and its complementary resources into uses in which they yield the greatest total economic return.

1. Valuation of Domestic
Water Supply
Ibnul Tamjid Iqbal
Student ID : 15MCE008P
&
Muhammad Tanveer Raihan
Student ID : 15MCE018P
CE 6410 WATER RESOURCES, PLANNING, ECONOMICS & MANAGEMENT
CHITTAGONG UNIVERSITY OF ENGINEERING & TECHNOLOGY
DEPARTMENT OF CIVIL ENGINEERING

2. VALUE OF WATER
‘Only what is rare is valuable, and water, which is the best
of all things…is also the cheapest’
- W. M. Hanemann
The Value of Water (2005)
Water’s value is the willingness to pay for
WATER
‘In a market system, economic values of water, defined by
its price, serve as a guide to allocate water among
alternative uses, potentially directing water and its
complementary resources into uses in which they yield the
greatest total economic return’
Ward & Michelsen (2002)

3. WHY WATER VALUATION?
Water value provides critical information for
decisions about
 Efficient and equitable allocation of water among
competing users, both
− within the present generation
− between present and future generation
 Efficient and equitable infrastructure investment in
the water sector (how much, where, when)
 Efficient degree of treatment of wastewater
 Design of economic instruments: water pricing,
property rights, tradable water rights’ markets, taxes on water
depletion and pollution, etc.

4. DOMESTIC WATER SUPPLY
Water used for indoor and outdoor household
purposes— all the things you do at home
 drinking
 preparing food
 bathing
 washing clothes and dishes
 brushing your teeth
 watering the yard and garden
 even washing the pet animals

5. VALUE OF WATER IN THE MUNICIPAL SECTOR
The demand for water in the municipal sector can be
categorized as-
 Residential
 Public
 Industrial and
 Other uses
The heterogeneity of demand for water in this sector, the
marginal value of water in the municipal sector
depends upon How Much Of It Is Already Available and
can Range Anywhere From Negligible To Infinite,
Depending Upon The Extremes Of Abundance And
Scarcity.

6. CATEGORY OF VALUE
Total Economic Value
Use Value Non-Use Value
Direct Use
Indirect Use
Option
Existence
Altruistic
Bequest

7. CATEGORY OF VALUE (CONTINUED)
Use Value:
Direct Use: Consumptive, e.g. drinking water,
irrigation, manufacturing
Non-consumptive, e.g. recreation
Indirect Use: Ecosystem services, e.g. nutrient
cycle, habitats, flood control
Option: Future direct & indirect use values

8. CATEGORY OF VALUE (CONTINUED)
Non-use Value:
Existence: Knowledge of continued
existence of resources
Altruistic: Knowledge of using resources by
current generation
Bequest: Knowledge of Passing on resources
to future generations

9. STEPS TOWARDS ESTIMATING VALUE
Step 01: Identify uses & functions
Step 02: Identify Stakeholders i.e. Focused
groups
Step 03: Choose Appropriate Valuation
Methodologies
Step 04: Estimate Monetary values of uses

10. VALUATION METHODS

11. HEDONIC PRICING METHOD (HVM)

12. TRAVEL COST METHOD (TCM)

13. AVERTING BEHAVIOUR METHOD (AVM)

14. RESIDUAL ANALYSIS (PRODUCTION COST METHOD)

15. CONTINGENT VALUATION METHOD (CVM)

16. CHOICE EXPERIMENT METHOD (CEM)

17. META ANALYSIS METHOD (MAM)

18. SUITABLE METHODOLOGY
• For the presented issue, the most suitable method is-
• “CONTINGENT VALUATION METHOD (CVM)”
Because-
1. Best method to estimate the total economic value of
non market goods or service,
2. Only method that can estimate the non-use values of
a resource,
3. CVM can provide useful and reliable information, but
it needs to be applied carefully,
4. CVM is not generally difficult to understand, &
5. CVM will frequently be the only technique of benefit
estimation.

19. PROCEDURES OF CVM
1.CVM determined individuals willingness-to-pay
(WTP) in hypothetical scenarios (Lee, 1997).
2.In this approach a hypothetical market for domestic
water supply with proper quality established and
some proposed price suggested to individuals.
3.Individual's answer to the proposed prices or bids has
been formed based on maximizing utility.
4.Accepting proposed price means that utility gained by
accepting is more than the utility of denying proposed
price.

20. NEED IN CONCERN
The marginal value of water supply in the domestic sector
depends upon-
 how much of water supply is already available,
 range from negligible to infinite, &
 the extremes of abundance and scarcity.
A consumer’s willingness to pay (WTP) for an increment in
supply is the corresponding area under the demand curve,
while the consumer actually pays the water price times the
quantity.
The area under the demand curve, which reflects the
consumers’ willingness to pay (WTP) for pre-treated, pressurized
water supplied to the household, will be higher than the actual
amount that they are paying.
Therefore the value of domestic water supply at its
source is net of the water utility costs and is represented as
the consumer’s surplus.

21. SUPPLY & DEMAND CURVE
1.Individuals are willing to pay
a high price for the water
supply they need to live, as
illustrated by point A.
2.But above some quantity, say
point B, people will pay
almost nothing more for
additional water supply.
3.While water supply is
available, the supply curve of
domestic water supply
intersects the demand curve
to the right of B.Figure: Supply and Demand
for Domestic Water Supply
SUPPLY

22. CONCLUDING WORDS
It has been observed that for urban utilities in
developing countries, the price of domestic water
supply only reflects the average financial costs i.e.
capital, Operation and Maintenance costs.
While for urban utilities in developed countries
the price of domestic water supply reflects only the
average financial costs with capital costs computed
in replacement costs.