Handbook of Water Economics
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Handbook of Water Economics

Edited by Ariel Dinar and Kurt Schwabe

Water scarcity, whether in the quality or quantity dimension, afflicts most countries. Decisions on water management and allocation over time, space, and among uses and users involve economic considerations. This Handbook assembles research that represents recent thinking and applications in water economics. The book chapters are written by leading scholars in the field who address issues related to its use, management, and value. The topics cover analytical methods, sectoral and intersectoral water issues, and issues associated with different sources of water.
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Chapter 24: Water and sanitation economics: reflections on application to developing economies

Dale Whittington and Subhrendu K. Pattanayak


The careful application of economics to potable water supply and sanitation investments is difficult, and it is thus not surprising that cost–benefit analysis is relatively uncommon in the WASH (i.e. water, sanitation and hygiene) sector. In this chapter, we offer reflections on the challenges of conducting economic analyses of water and sanitation investments. While economists have struggled with many of the issues discussed in this chapter for several decades, we are not aware of a single, brief account of the main challenges involved in the economic analysis of WASH investments. This chapter seeks to fill that gap, but it is not a step-by-step guide for economic analyses of WASH investments. Instead, we hope that discussion of several key issues will help practitioners better conceptualize the challenges associated with their work. The first section of the chapter offers a typology of different types of benefits that may result from WASH investments that emerges from a utility maximization framework. A thorough cost–benefit analysis will need to account for them when they prove to be important in a specific time and location. In the second section of the chapter we briefly review the different methods to estimate benefits from WASH investments, including both revealed and stated preference techniques. The third section is the main part of the chapter.

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