1. DISTRIBUTIONAL ASPECTS OF
WATER POLLUTION CONTROL
PROGRAMS:
A CASE STUDY OF NCT DELHI
A brief synopsis of my PhD Thesis
RUPA BASU
(Under the Supervision of Professor D.N.Rao)
CENTER FOR ECONOMIC STUDIES AND PLANNING
SCHOOL OF SOCIAL SCIENCES
JAWAHARLAL NEHRU UNIVERSITY
NEW DELHI, INDIA
2008

2. Introduction
• With growing awareness and concern about the environment, a
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number of pollution control programs are being implemented in
developed as well as developing countries. These programs often
involve all the sectors of the economy and a huge amount of
resources.
In the world of political reality the distribution of benefits and costs
is often the key issue in environmental policy.
While economists are usually concerned about the economic
efficiency of a proposed environmental program, most other
observers like policy makers, the press and the public are more
interested in its equity.
The distributive issue in environmental policy must be dealt with
effectively, not only because attention to it is good political strategy,
but because the subject is really crucial to the welfare of the society.
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3. Continued:
• Over the years water pollution has emerged as a major
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environmental problem and the provision of safe drinking water is
among the biggest issues confronting urban development
professionals all over the world.
To control the pollution levels of a river, a multi-pronged strategy
that involves setting up of sewage treatment plants, controlling the
flow of industrial effluents into the water body and relocating
existing patterns of life is required. This is bound to involve a lot of
cost.
Such programs often face severe opposition from the masses
because of perceived inequity in their distribution of costs and
benefits.
On examining the incidence of water pollution abatement costs the
government may wish to adopt an appropriate redistribution
program. By this we would be able to blunt any political backlash
against the pollution control measures being adopted.
3

4. Objectives of the study
In this study we have taken up the case study of the Programs for
Cleaning of Yamuna River in Delhi (abbreviated as PCYD for
convenience).
The two main objectives of this study are:
• To advance our understanding about the patterns of
distribution of benefits and costs associated with water
pollution abatement programs.
• To test the hypothesis that the burden distribution of
comprehensive pollution control programs like a river action
plan is in general regressive.
4

5. Programs for Cleaning of Yamuna in Delhi (PCYD)
• The National Capital has grown to an enormous size over the last
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four decades with population explosion, haphazard growth of
unauthorized colonies, slums and industrial units.
This has resulted in discharge of massive amounts of domestic and
industrial wastewater that are eventually released into the Yamuna
River.
The stretch between Wazirabad and Okhla is most heavily polluted
and is characterized by high bacterial population, cloudy
appearance and strong disagreeable odor.
For more than a decade now the government is trying to improve
the condition of the river Yamuna. Numerous public works are
being undertaken by the Union Government under the Yamuna
Action Plan (YAP) along with other initiatives by the Delhi State
Government.
The Supreme Court has also been very active in this matter.
Overall a lot of money has been spent on these programs.
5

6. Pollution Problem of the Yamuna River in Delhi:
Some Details
• In general the water pollution problem of a River like Yamuna that
flows through several states should be studied in an integrated
manner since upstream activities and pollution control measures
have an impact on the water quality of the River downstream.
• However the case of water pollution problem of Yamuna River in
Delhi is unique in the sense that after it enters the city at palla
village, the river is tapped at Wazirabad Barrage for drinking water
supply to Delhi.
• Generally no water is allowed to flow beyond Wazirabad barrage in
dry season (almost 9 months), as the available water is not
adequate to fulfill water requirement of Delhi.
• Thus for all practical purposes the pollution problem of Yamuna
River in Delhi can be treated as a separate problem that needs to be
solved by addressing the issue of the large volume of untreated and
partially treated industrial and household borne effluents that join
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the River through 19 majors nallahs crisscrossing Delhi.

7. The Broad Approach followed
•To determine the benefits •To determine the aggregate
derived from the expected water
quality improvement form PCYD
and the incidence of those
benefits.
costs incurred for PCYD and the
incidence of these costs on
different income groups.
• We compare the two estimates to come to a conclusion about the
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overall distributional impact of this major pollution control
initiative.
The objectives of our study are evaluated in the light of our findings
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8. Contingent Valuation Study of Yamuna River in Delhi
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In order to estimate the total benefits as well as the distributional
impact of the benefits from PCYD it is necessary to know the value
attached to the improvement in the river water quality by the
inhabitants of the city .
Since water quality is a nonmarket good having several dimensions,
the contingent valuation method (CVM) was thought to be the
most appropriate technique for this purpose.
CV is a survey based method frequently used for placing monetary
values on environmental goods and services not bought and sold in
the marketplace.
Under CVM individual respondents are asked hypothetical
questions about how much they would be willing to pay for
preservation of the resource.
CVM allows us to determine the total economic value (= Use Value
+ Existence Value + Bequest Value + Option Value) of an
environmental resource.
8

9. The Survey
•
To estimate the benefits from water quality improvement of
Yamuna River in Delhi (WQIYD for convenience) a CV study of the
Yamuna River was carried out in May-June 2005.
• 502 households were surveyed at random across Delhi using
district-wise stratified random sampling.
• Double Bounded Dichotomous Choice (DBDC) elicitation procedure
was used followed by an Open Ended question. Face-to-face
interviews were used and the questionnaire was administered in
both Hindi and English for the comfort of the respondents.
• A crucial issue in this method is the choice of the bids offered to
respondents since it can affect the estimation of the mean WTP.
• Three questionnaires were designed with varying double
dichotomous bids to measure the respondents’ willingness to pay.
These were Questionnaire A: 80-100-120, Questionnaire B: 35-5065 and Questionnaire C: 10-20-30.
9

10. Continued:
• These figures were fixed on the basis of the willingness to pay
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(WTP) data obtained in a pilot study where an open-ended format
was used.
The questionnaire was carefully designed to minimize biases (like
hypothetical bias, strategic bias, payment vehicle bias, anchoring
bias and social desirability bias) that are associated with CV
administration.
The questionnaire included questions on Willingness to Contribute
Time along with the WTP for WQIYD.
An important aspect of a CV study is the selection of an appropriate
payment vehicle. The payment vehicle must be realistic, believable
and neutral.
It was decided that a monthly wastewater treatment fee would
ensure that the payment question was incentive compatible and
also prevent the respondents from acting strategically.
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11. Continued:
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Considering the unsatisfactory record of the government, it was
suggested that the improvement in the water quality would be
brought about through various programs carried out by a non-profit
making NGO that is reputed for doing honest and efficient work.
• The respondents were told that they would have to pay the
monthly wastewater treatment fee for a period of 3 years. This
discouraged “yes saying”.
• We had expected that only those belonging to the lowest income
groups would mostly be willing to contribute time partly because of
their inability to contribute money.
• However the survey showed that 45.4% of the respondents (228 in
number) said ‘yes’ that they would be willing to contribute time for
activities for cleaning up of Yamuna. This was an important
indication of people’s concern for the state of Yamuna river in Delhi.
• The study shows that CVM can be used successfully in developing
countries to measure benefits from environmental resources.
11

12. Statistical Analysis of the Survey Data
Our statistical analysis of the survey data was carried out in
several steps:
A. Analysis of Single Bound Dichotomous Choice (SBDC)
Responses using the Logit Model.
B. Analyzing DBDC data to estimate the WTP by using
Multilevel Modeling Methods (MLM).
C. Estimating the incidence of the benefits from WQIYD by
analyzing the stated WTP data using Ordinary Least Squares
method
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13. Analysis of SBDC Responses using the Logit Model
• The individuals who agreed to make a payment of a monthly
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wastewater treatment fee were offered one of three initial bid
levels (Rs.100, Rs.50 or Rs.20).
Before analyzing the DBDC data using MLM we have first carried
out conventional analysis of the Single Bound Dichotomous Choice
data first using logistic regression.
The dependent variable in this model is the ‘yes’ and ‘no’ response
i.e., binary data to whether a respondent will pay the initial bid as a
monthly WWTF.
In the logistic regression of the SBDC responses we found that apart
from pcy and bid none of the other explanatory variables were
significant. The equation we get is:
Li = ln (Yi / 1- Yi) = 2.007 - 0.039 bid + .001 pcY
This was followed up by the analysis of DBDC data using MLM
method.
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14. Multilevel modeling: A brief Introduction
• Many kinds of data have a hierarchical or clustered structure.
Multilevel models recognise the existence of such data hierarchies
by allowing for residual components at each level in the hierarchy.
• For example, a two-level model which allows for grouping of child
outcomes within schools would include residuals at the child and
school level. Thus the residual variance is partitioned into a
between-school component and a within-school component
• The school residuals represent unobserved school characteristics
that affect child outcomes. It is these unobserved variables which
lead to correlation between outcomes for children from the same
school.
• Traditional multiple regression techniques treat the units of analysis
as independent observations. One consequence of failing to
recognise hierarchical structures is that standard errors of
regression coefficients will be underestimated, leading to an
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overstatement of statistical significance.

15. Using MLM to estimate WTP from DBDC data
• The DBDB data generated by the CV survey is essentially
hierarchical in character. It is a three level model with responses at
level 1, individuals at level 2, and initial bid presented at level 3.
• MLM is therefore the appropriate approach for analyzing DBDC
data since it provides the opportunity to study variation at different
levels of the hierarchy.
• In carrying out the MLM exercise we are principally concerned with
estimating the E(WTP) using DBDC data and separating out effects
due to the design of the response structure from those due to
individuals.
• Consequently in this study we have only considered a two-stage
hierarchy with responses nested within individuals by defining the
former as level-1 variation and the latter as level-2.
• Moreover for modeling the 3 level hierarchical data the number of
initial bids should be large which we did not have.
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16. Continued:
• Since we found pcY and bid as the only significant variables in the
analysis of the SBDC data these variables were included in the
estimation of WTP.
• The multilevel model we have estimated is:
LOGIT ki= a + bBID ki +cPCY ki + viBID ki + wiPCY ki + ui + e ki
wi = allows random slopes, vi ~ N (0, σ2v)
• The MLM analysis was carried out on LISREL 8.30. We found that
there is no significant estimated variance between the response
variable and BID and the insignificant terms were omitted.
• The best model is given as equation:
Li = ln (Yi / 1- Yi) = 1.20881 + -0.01946BID+ 0.00013PCY
(0.38446) (0.00154)
(0.00021)
• The final model includes PCY and BID as explanatory variables and
significant first order interactions. We get the median WTP as equal
to Rs 93.74.
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17. Estimating the incidence of the benefits from WQIYD
• For this we used the linear regression model where the dependent
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variable is SWTP (stated willingness to pay) i.e. the maximum WTP
figure stated by the respondents in response to the open-ended
question at the end of the DBDC valuation questions. The figures
are considered to be continuous in nature.
The protest bids and outliers were excluded the final count of
observations stood at 440. OLS regression was run using the
software package SPSS.
Effort was made to examine the presence of any anchoring effect or
starting point bias. Taking bid C as default, bid B did not turn out to
be significant but bid A was positive and significant indicating that
those who were offered a bid of Rs 100 did state a higher WTP.
Effects of the bid variable were removed by setting bid_a = 0.
The mean WTP for WQIYD comes down from Rs 79.46 to Rs 63.23
after correcting for the starting point bias. The median WTP is Rs.
60.41.
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18. Continued:
• We see that the WTP estimates obtained from the OLS regression
are much less than the WTP estimates yielded by the DBDC data.
• This is, in fact, supported by literature. Most studies comparing the
WTP estimates from open-ended (OE) and dichotomous choice (DC)
elicitation formats have reported that the mean WTP from DC
formats exceed those from OE experiments (Bateman et. al. 1999).
• OLS regression method yields the mean WTP whereas the SBDC
and DBDC methods give us estimates of median WTP.
• OLS estimates have been used for determining the incidence of the
benefits from WQIYD between different income groups since
median cannot be aggregated over the population (Duffield and
Patterson 1991) .
• In this study we have used the income groups fixed by the Market
Information Survey of Households 2001-02 conducted by NCAER.
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19. Continued:
• The population is divided into 5 income groups: lower income
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group (an annual household income of up to Rs 45000), lowermiddle income group (Rs 45001 to Rs 90000), middle income group
(Rs 90001 to Rs 135000), upper-middle income group (Rs 135000 to
Rs 180,000) and higher income group (more than Rs 180,000).
The average of the SWTP of the individuals belonging to each
income class was estimated.
Table 1
• We see that, as expected, water quality improvement is a normal
good and the demand for water quality improvement increases
with income.
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20. ‘Regressive’ and ‘Progressive’ distribution of benefits:
Some reconsideration
• In our study we have taken the Willingness To Pay figure as the
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measure of the benefits derived by different income groups (Ebert
2003).
Using the terms in a parallel fashion, this study assumes that a
benefit schedule is regressive when the gain as a percentage of
income declines as the level of income rise, and that it is
progressive when the opposite occurs.
It follows that the implications for equality differ depending on
whether the regressive schedule is applied to benefits or to costs.
Thus we note that
(A) whereas a regressive tax/costs schedule is “against the poor”
and “pro-rich”.
(B) a regressive benefits/ expenditure schedule is “pro- poor” and
“against the rich”.
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21. Is the distribution of benefits from WQIYD pro-rich?
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Studies have shown that if and only if the income elasticity of the
benefit measure is greater than one that benefits are distributed
progressively, i.e., pro-rich (Ebert 2003).
Our regression estimates showed that the income elasticity of WTP
of the residents of Delhi to pay for WQIYD is 0.401 which is less
than unity. This implies that the benefits are distributed regressively
i.e. are pro-poor.
The result is supported by the findings of Kristrom and Riera (1996),
Johnstone (1997) and others who while examining the income
elasticity of environmental improvements in different countries
found a persistent result that people in lower income brackets have
a relatively higher WTP for preserving particular environmental
goods.
The income elasticity of environmental improvements is also often
found to be less than unity.
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22. Continued:
• In our case this may be due to the fact that while people belonging
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to higher income groups can take remedial steps to improve the
quality of water supply, those belonging to the lower income
groups must depend on the public water supply system for meeting
their drinking water and other needs.
The quantitative analysis of SWTP gives us the average WTP of
households belonging to different income groups:
Table 2: Benefits from PCYD (Figures in Rs)
Income
Groups
1.
2.
3.
4.
5.
(1)
L
LM
M
UM
H
Total
Annual
WTP
(per
Household)
(2)
297.60
448.92
691.80
939.24
1539.24
Number of
Households
Aggregate
WTP for
2005-06
PV of the Stream of
Benefits 2005-06 to
2007-08)
(3)
27560
235260
376800
424700
1653680
(4)=(2)*(3)
8201856
105612919
260670240
398895228
2545410403
(5)
22436482.12
288908068.2
713073135.7
1091192731.0
6963064820.0
2718000
Benefits
Received
(per
Household)
(6)=(5)/ (3)
814.10
1228.04
1892.44
2569.32
4210.65
3318770646 907.87 cr (approx)
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23. Cost Estimation
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In our study we have separately estimated the expenditure incurred
for pollution control of Yamuna River in Delhi for the YAP
component, the expenditure incurred by the Delhi State Govt. on
STPs, construction of sewers etc, the expenditure incurred the
Government and the private industries on CETPs and the cost of
rehabilitation of slums from Yamuna River banks.
The aggregate costs of PCYD are estimated for the years 2000-01 to
2007-08 (Table 3).
The choice of this period was dictated by the availability of data as
well as the fact that most of the efforts for cleaning up of the
Yamuna River in Delhi have been made during this period under
pressure from the Supreme Court.
The present value of the aggregate costs of PCYD was estimated to
be Rs 1662.25 crores.
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24. Table 3: Aggregate Costs of PCYD (Figures in Rs lacs)
Year
DJB
(sewage
and
drainage
schemes)
2000-01
7569.62
20001-02
13098.14
20002-03
12765.43
20003-04
CETPs/ JJ
rehabilitati
on/
others
Total
(current
prices)
67.5
7637.12
Present
value of
cost
incurred
(2005-06
prices)
12299.66
7240.84
20338.98
29778.30
9185.00
21950.43
29216.02
13909.11
13909.11
16830.02
20004-05
18650.55
18650.55
20515.60
20005-06
11245.67
1660
29187.57
29187.57
20006-07
11245.67
1660
12905.67
17732.43
20007-08
11245.67
1660
12905.67
10665.84
137485.10
166225.44
Total
MCD
(CTCs, mini
and micro
STPs,
PP & PA)
10609.76+
5672.14
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25. Incidence of the Costs of PCYD
• All the costs of meeting environmental standards and the costs of
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various environmental programs are ultimately borne by
households.
They must pay for the costs incurred by the government through
the process of taxation and expenditure cuts and the costs incurred
by business by a shifting mechanism which includes higher prices,
lower dividends and changed job opportunities.
In order to determine the pattern of incidence of pollution control
expenditure incurred by the government, we must determine the
way in which the expenditure is financed.
We assume that tax increases financed the government’s share of
the water pollution control programs instead of expenditure cuts
(Dorfman 1975).
To analyze the distribution of taxes we also must adopt a set of
assumptions about the taxes that are involved in the financing of
water pollution control expenditure by the government i.e. the ‘taxmix’ problem .
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26. Assumptions made for estimating the incidence of the
costs of PCYD
(a) The part of total expenditure on PCYD that is being funded by an
international soft loan is assumed to be incurred by the Union
Government since it is responsible for the loan repayment.
(b) The budget documents of the Delhi government show that for the
year 2005-06 , 77% of own tax revenue was generated through
indirect taxes. Therefore we have assumed that the portion of
costs of PCYD that is borne by Delhi Government is funded out of
indirect taxes.
(c) On the basis of the total tax revenue of the Union government for
the year 2005-06 we have assumed that the expenditure incurred
by the central government for PCYD is also financed through
indirect taxes.
(d) the indirect taxes on the whole are assumed to be raised by equal
percentage surtaxes, leaving the distribution of each tax
unchanged with respect to its base.
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27. Explanation of the Assumptions
• Incidence analysis deals with the diffusion of tax burden among
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different economic classes in a country. To analyze the incidence of
indirect taxes one has to trace the consumption of taxed
commodities to the family budgets of people in different income
classes.
Very few such studies have been carried out in India at State and all
India levels.
In the absence of data on income distribution, in most studies
expenditure has been assumed to be equal to income and the
burden of indirect taxes has been expressed as a ratio of
expenditure, rather than income of different economic groups.
However consumption expenditure, as a proportion of income,
tends to fall as one move up the income scale. Thus, at very low
levels of income, consumption might be as much as the income
whereas it might account for an insignificant proportion of income
at high income levels.
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28. Continued:
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In fact Aggarwal (1998) noted that if we assume zero savings by an
average person in the lowest expenditure class and a 30% savings
rate for an average person in the top expenditure class, then their
effective tax rates with respect to income will be approximately
equal even in the rural areas. Such a pattern of savings rates is not
implausible.
On basis of the above mentioned study we have assumed that all
individuals belonging to different income groups in Delhi are paying
an equal percentage of their income as indirect taxes.
On the basis the revenue figures obtained from the budget
documents of Delhi government and the Union Government for the
year 2005-06 we estimated that 7.06% of per capita income is paid
in indirect taxes to the state government.
6.73% of per capita income is paid as indirect taxes to the union
government by all households in Delhi.
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29. Distributional Impact of Environmental Protection
Costs Incurred by Private Industries
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Some early studies (Drofman and Snow 1975, Robison 1985) have
examined that the distributional impact of environmental
protection costs incurred by the private industries.
Drofman (1975) found that an effort to trace the inter-industry
effects of cost increases using an input-output matrix, led to the
conclusion that increases in prices of final products will be so widely
diffused over the spectrum of commodities that their impact on
income groups will tend to follow the pattern of general
consumption expenditures.
Following this logic we have also assumed that the expenditure
incurred by private industries for the construction of CETPs has the
same impact as that of a sales tax.
It was estimated that the cost incurred on CETPs implied a
surcharge of 16.47% on the sales tax paid by households to the
state government and a surcharge of 0.30% on the indirect tax paid
to the union government.
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30. Incidence of the Costs and Benefits on Different
Income Groups
Integrating different aspects the study described above we get the
estimates of the incidence of the benefits and costs of PCYD on
different income groups:
Table 4: Incidence of Costs and Benefits on Different Income Groups (per annum)
Income Groups
cost incidence
benefit incidence
Lower
458.44
814.1
Lower-Middle
1084.6
1228.04
Middle
1899.55
1892.44
Upper Middle
2832.82
2569.32
Higher
7354.02
4210.65
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31. Incidence of Costs and Benefits of PCYD
8000
annual WTP/additional tax burden
7000
6000
5000
Costs
Benefits
4000
3000
2000
1000
0
1
2
3
4
5
income group
• Thus we find that for the lower and lower-middle income groups the
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estimated benefit is actually more than the cost measured in terms
of additional tax burden on the households.
For the middle income group the two are almost equal and for the
upper-middle and higher income groups the incidence of costs is
higher than the incidence of benefits.
Thus the hypothesis about the regressive net impact of pollution
control program does not hold in the case of PCYD.
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32. Notes
• The results of the study show that the people of Delhi feel a lot of
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concern for protection of environmental resources. They are
particularly concerned about the state of the River Yamuna and are
also willing to pay for the cleaning up and restoration of the River
provided the funds collected are appropriately used.
The findings of our study encourage us to think that with political
commitment and the right kind of institutional setup such efforts
can be successful and financially sustainable.
The results of this study on the distributional impact of large scale
and comprehensive programs like PCYD should go a long way in
providing support for environmental protection programs in general
and River Action Plans in particular.
The results of the study support the view that in general
environmental policies are often labour intensive in nature and
should prove to be a means of raising the real income and wages in
low-income regions (Anderson 1991).
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33. Selected References
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Aggarwal, P.K. (1998); The Incidence of Major Indirect Taxes in India. National Institute
of Public Finance and Policy, New Delhi
Bateman, I.J., I.H.Langford and J.Rashbash (1999); Willingness to Pay Question Format:
Effects in Contingent valuation Studies. Chapter 15 in Valuing Environmental
Preferences. Theory and Practice of the Contingent Valuation Method in the US, EU and
Developing Countries. Eds. I.J.Bateman and K.G.Willis. OUP. New York
Dorfman, N.S. and A. Snow (1975); Who Will Pay for Pollution Control? - The
Distribution by Income of the National Environmental Protection Program 1072-1980.
National Tax Journal 28 p101-15
Dorfman, R. (1977); Incidence of the Benefits and Costs of Environmental Programs.
American Economic Association 67(1) p333-40
Ebert, U. (2003); Environmental Goods and the Distribution of Income. Environmental
and Resource Economics 25 p435–59
Johnstone, N. (1997); Economic Inequality and the Urban Environment: The Case of
Water and Sanitation. Working Paper DP 97-03 U.S. Environmental Protection Agency
Kristrom, B. and P. Riera (1996); Is the Income Elasticity of Environmental Improvements
Less Than One? Environment and Resources Economics 7 p45-55
Markandya, A. (1998); Poverty Income Distribution and Policy Making. Environmental
and Resource Economics 11(3-4) p459-72
Robison, H. D. (1985); Who Pays for Industrial Pollution Abatement? The Review of
Economics and Statistics 67(4) p702-06
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34. Thank You