Cost–Benefit Analysis and Water Resources Management

Cost–Benefit Analysis and Water Resources Management

Edited by Roy Brouwer and David Pearce

How are the economic values of water and water quality accounted for in policy and project appraisal? This important book gives an overview of the state-of-the-art in Cost–Benefit Analysis (CBA) in water resources management throughout Europe and North America, along with an examination of current applications.

Chapter 16: Cost–benefit Analysis of Urban Water Supply in Mexico City

G. Soto Montes de Oca and I.J. Bateman

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, management natural resources, valuation, water


16. Cost–benefit analysis of urban water supply in Mexico City G. Soto Montes de Oca and I.J. Bateman 1. INTRODUCTION Shortcomings in the water supply service in large urban areas of developing countries are a critical problem affecting millions of people (ICWE, 1992; UNDP, 1990; WHO et al., 2000). Almost half of the world’s population live in urban areas, and most population growth is taking place in the developing world (United Nations, 1995). The enormous volumes of water and extensive infrastructure required to fulfil urban water demand have frequently exceeded the ability of government to provide secure supplies, and have also created severe environmental problems (Drakakis-Smith, 2000; Hardoy et al., 1992; Munasinghe, 1990; Serageldin, 1994). Governments in developing countries often subsidize water supplies, typically in an attempt to achieve social and health benefits for the low-income households forming the large majority of the urban population. However, a perverse result can arise if the benefits of subsidized water accrue primarily to wealthier households receiving reliable services, with poorer households benefiting in a less than proportionate manner because they have irregular or non-potable water supplies and have to purchase water from other, non-subsidized sources. When this is the case, the drain on government revenues represented by the subsidy can hamper its ability to expand and improve the service provided to the urban poor. The importance of increasing investment in new infrastructure, as well as for the operation and maintenance of the current system, is highly...

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