Economic inequality and the urban environment: the case of water and sanitation

The paper explores the consequences of “dual” systems, in which a proportion of a city’s residents are served by subsidised “town” water and sanitation facilities, whilst another section of the city has been forced to develop a variety of “on-site” strategies through their own efforts.

Findings:

• the public nature of urban environmental quality and the relative income-inelasticity of demand for the services which are necessary for its preservation means that low levels of service provision (even if it is not income-biased) will tend to have relatively more adverse effects for poorer households
• the use of potential (rather than actual) compensation and equal weights in the evaluation of public water and sanitation projects results in a perpetuation of this bias over time
• the provision of urban environmental services can be one of the most significant means of achieving distributional objectives, particularly in countries in which there are relatively few other mechanisms for redistribution available to the state
• the existence of economies of scale in terms of levels of service provision and rising costs in terms of quality of service provision implies that equal access to a standard system may be more efficient than differentiated access and treatment
• the existence of insufficient cost recovery in the public system and high costs in the on-site system implies that there is potential for significant expansion of the former if resources are reallocated
• the external benefits of water service and sanitation service access and the existence of a proportion of the population which is not in a financial position to pay for full cost recovery implies that some form of cross-price subsidies may be necessary