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2015-10-15 | project

Water pricing and the demand for municipal water and sanitation services in Kenya

This project seeks to provide policy makers information that can improve water pricing and enhance the planning and delivery of water and sanitation services. As a result, this project will advance two of EfD’s core objectives – poverty alleviation and environmental sustainability. 

The UN Population Division projects that all of the population growth over the next four decades will occur in urban areas. As urban populations grow, governments will continue to face the challenge of providing improved water and sanitation services to their increasingly urban populations. This challenge will be especially pronounced in much of Africa where urban population growth is projected to be the highest and water and sanitation coverage and service levels are already low.

With the passage of the Water Act of 2002 the Government of Kenya enacted a series of reforms in the water sector intended to improve utility performance, enhance cost recovery, and expand access to piped water and sanitation services. In order for policy makers and utility managers to plan effectively in the face of potential tariff increases, climate change, and broader macro-economic trends, they must have a sense of how customers will respond to changes in prices, temperature, rainfall, and income. This has been long recognized and studied by economists in industrialized countries.  However, there have been limited attempts to estimate these parameters in developing countries, particularly in Africa.

This project proposes to use panel data from all water utilities in Kenya and micro-level panel data from Nairobi to add to the literature on the estimation of demand for piped water and sanitation services in developing countries. In particular, this project will explore two interrelated sets of questions. The first component of the project will examine the extent to which customers of Nairobi City Water and Sewer Company respond to average or marginal prices. The second component of the study seeks to estimate the price and income elasticities of demand for municipal water and sanitation services in Nairobi and across Kenya more broadly.