Scope sensitivity in households' willingness to pay for maintained and improved water supplies in a developing world urban area : investigating the influence of baseline supply quality and income distribution upon stated preferences in Mexico City

Abstract

We present the first assessment of willingness to pay (WTP) for water supply change to be conducted in the largest city in the developing world: Mexico City. Two large sample contingent valuation surveys are conducted to investigate WTP for two levels of water service quality: maintenance of or improvement over current provision levels. This study design permits one of the first tests of the “scope sensitivity” of WTP responses to different levels of baseline supply provision. This testing is complicated within the present case because as our study confirms, higher‐income households typically enjoy better levels of current provision, while poorer households generally endure lower current standards of water supply. We incorporate this heterogeneity of service and correlation with income within a suite of novel scope sensitivity tests. These confirm prior expectations that richer households enjoying higher baseline service levels would prefer programs to maintain the status quo, while poorer households enduring lower initial quality of service would prefer schemes which improve the quality of supplies. The implications of these findings are further investigated by contrasting conventional benefit‐cost analysis aggregation procedures with an equity weighting approach which confirms the difference in priorities according to initial supply conditions. In this case, the ranking of programs changes when the ability to pay is equalized across society. In fiscal terms, aggregate WTP figures show that authorities could collect the resources necessary to fund households' preferred schemes and simultaneously substantially reduce current subsidies.