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Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

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Presentation made by Dale Whittington, Claudia Sadoff and Maura Allaire, GWP Regional Days Meeting, August 22-24, 2012, Stockholm, Sweden
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The Economic Value of Water Security Dale Whittington, Claudia Sadoff, & Maura Allaire August 24, 2012
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Page 1: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

The Economic Value of Water Security

Dale Whittington, Claudia Sadoff, & Maura AllaireAugust 24, 2012

Page 2: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire
Page 3: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Intuition vs. Analysis

• Our intuition tells us that the benefits of water are extremely large, that water is very valuable …

• What does it tell us about the “costs” of infrastructure?

Page 4: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Intuition vs. Analysis

• We want to raise donor funds for the sector (and convince Ministers of Finance of the importance of water security) based on intuition;

• But we need analysis to invest the money wisely.

Page 5: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Intuition vs. Analysis

When is intuition likely to be the most useful?

Best guide for decisions?

Page 6: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Background (1)

Looking at both …- Regional water resources investments, &- Municipal piped water and sewer

networks

Page 7: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Background (2) - Concepts

• Economic value • User values vs. system values• Water security• Water Development Paths

Page 8: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Table of ContentsIntroduction

The Economic Value of Water Security: Basic Concepts

The State’s Perspective on the Value of Water SecurityOverviewThe Role of the StateWater in a Dynamic, High-Growth Economy

The Perspective of the Household on the Economic Value of Reducing Water-related RisksEconomic Value of Reducing Risks from Floods and DroughtsEconomic Value of Reducing Water-related Health Risks

Concluding Remarks: What is to be Done?

Page 9: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Four puzzles …

Page 10: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Puzzle #1

• Economists tell us water allocation problems are easy to solve.

• Movement of water from “low-value uses” to “high-value uses” is cheap.

• But States behave as if water is extremely valuable.

Page 11: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Puzzle #2 – Ex-post “Macro Evidence” on Investments

• Investments in large-scale water resources management investments → economic growth, high returns (?)

Page 12: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Puzzle #3 – “Micro Evidence” from Households

• Household demand (willingness to pay) is high to reduce water-related risks (floods, droughts, WASH diseases) – right?

Page 13: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Annual flood deaths in China, India, and Bangladesh year by year (1950-2010)

1

10

100

1,000

10,000

100,000

1,000,000

10,000,000

1940 1950 1960 1970 1980 1990 2000 2010 2020

Flood

Dea

ths

Bangladesh

China

India

Page 14: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Deaths in High-Income Countries by Age Cohort Population, 2004

0

4,000

8,000

12,000

16,000

Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80

Deat

h Rat

e (d

eath

s per

100,

000 o

f Age

Coh

ort

Popu

lation

)

Deaths in High-Income Countries by Age Cohort Population, 2004

WASH-related

HIV/AIDS

Resp. infect.

Other CMPN

Other Injuries

Cardio. Diseases

Other Non-comm.

WHO 2008

Page 15: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

0

4,000

8,000

12,000

16,000

Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80

Deat

h Rat

e (d

eath

s per

100,

000 o

f Age

Coh

ort

Popu

lation

)Deaths in Low-Income Countries by Age Cohort Population, 2004

WASH-related

HIV/AIDS

Resp. infect.

Other CMPN

Other Injuries

Cardio. Diseases

Other Non-comm.

WHO 2008

Page 16: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Puzzle #4

Water Development Paths …

Page 17: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Water & Sanitation Coverage vs. GDP

Page 18: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Distribution of Capital and O&M Expenses for Municipal Piped Network Services (among Donors,

Government, and Customers) vs. GDP

Page 19: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Puzzle #4

• Almost no examples of a country that has experienced economic development that does not move toward more water security; and • Few examples of a country moving from

water-insecurity to water security before GDP, economic growth increases.

Page 20: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Water & Sanitation Coverage vs. GDP

Page 21: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

→ There are not many fundamentally different water development paths from the households’ perspective, but there are from the State’s.

Page 22: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Piped Water Coverage:China, Brazil, India, Nigeria, & Egypt

19

50

19

53

19

56

19

59

19

62

19

65

19

68

19

71

19

74

19

77

19

80

19

83

19

86

19

89

19

92

19

95

19

98

20

01

20

04

20

07

20

10

20

13

20

16

20

19

20

22

20

25

20

28

20

31

20

34

20

37

20

40

20

43

20

46

20

49

0

10

20

30

40

50

60

70

80

90

100

China

India

Brazil

Nigeria

Egypt

Year

Pip

ed W

ate

r &

Sanit

ati

on C

overa

ge

(% T

ota

l P

opula

tion)

Page 23: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

WASH-related mortality 1950-2050, by world region

Page 24: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Five reasons why water-related risks are so important to the State

Page 25: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Reason #1- Foreign threats

- Some water-related threats are man-made. - Households and states can be confronted with water-related risks from the non-cooperative behavior of other states.

Page 26: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Reason #2 - Disasters

- When large water-related disasters strike (e.g., floods, droughts, cholera epidemics), many citizens experience losses at the same time. -The legitimacy of the State is called into question if it fails to mobilize adequately to large-scale, complex disasters such as floods, drought, and epidemics. → Insurer of last resort

Page 27: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Reason #3 - Food

-Food shortages may arise for a variety of reasons, including natural disasters, floods, droughts, crop disease, and disruptions in global trade. -If food is in short supply and food prices spike, the economic value of water increases. -Taking a static perspective on the economic value of water in agriculture before a food shortage occurs risks ignoring the issue that the State is most concerned about: ensuring that its citizens are fed.

Page 28: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Reason #4 – Coordination, Conflict Resolution

- The State must coordinate the actions of different water users and resolve water allocation conflicts among its citizens. - Failures of coordination and conflict resolution are perceived as failures of the State.

Page 29: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Reason #5: Increasing returns to scale

- The State is responsible for establishing the economic policies needed for less developed countries to transition to a high-growth economy. - Improved water services and water resources management have important (but difficult to quantify) roles to play in the transition to a high-growth economy.

Page 30: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Advice for Government (Ministry of Finance?)

Page 31: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire
Page 32: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Joseph Schumpeter

“ … one essential peculiarity of the working of the capitalist system is that it imposes sequences and rules of timing … it is not sufficient to be right [about investment opportunities] in the abstract; one must be right at given dates.

Business Cycles (1939)

Page 33: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Implications for Government (Ministries of Finance?)

1) Transparency - Choice of water development paths

- Clarification of tradeoffs - Accountability

- Participation2) Teams of serious people – strategic planning3) Capacity building – creating strategic thinkers

Page 34: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Thank you!

And send your comments/suggestions to:[email protected]

[email protected]

Page 35: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

The different perspectives of the State & the household on water risks

and the economic value of water

Page 36: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Attributes of Municipal Water Services in selected Asian cities

-100

-50

0

50

100

150

200

250

300

350

- 20 40 60 80 100

Kathmandu

Delhi Colombo

Ho Chi Minh

Jakarta

Hong KongSeoul

Quantity

Quality

Quantity

Quality

Quantity

Quality

Quantity

Quality

Quantity

Quality

Quantity

Quality

Quantity

Quality

Quantity

Quality

Cons

umpti

on/C

apita

(l/c

/d)

Quali

ty(%

)

Reliable, 24-hour access (% connections)

KathmanduColombo

Ho Chi Minh

Jakarta

Hong Kong

Delhi

Seoul

Poor Service(Very Insecure)

High-Level Service(Secure)

Attributes of Municipal Water Services

Notes: Quantity, measured as domestic consumption per capita (liters per capita per day) Source: ADB 2004. Water in Asian Cities.Quality, measure as % of water samples passing bacteriological tests Source: ADB 1997 Second Water Utilities Data Book.Reliability, measured as % of connections having 24-hour access Source: ADB 2004. Water in Asian Cities.

Page 37: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Annual capital and per capita expenditures in the Water Industry in England and Wales, 1921-2015

(constant 2011 prices)

Page 38: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Households’ Perspective

Page 39: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Quantity: 5m3Reliability: 3hr/ dayQuality: Poor

Quantity: 15m3Reliability: 24hr/ dayQuality: Excellent

Quantity: 10m3Reliability: 18hr/ dayQuality: Good

Quantity: 12m3Reliability: 12hr/ dayQuality: Good

Level A

Level B

Level C

Level D

Page 40: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Table 4 – Summary Comparison of Household and State Perspectives

Perspective on … Households State

Economic value of water User value System Value

Investment Planning Steps along a water development path

Responsible for choice between alternative water development paths

Economic Value of Disasters Ex-ante (Economic value determined before disaster

Ex-post (Insurer of last resort)

Non-cooperative behavior Conflicts with neighboring households

Conflicts with other states on shared water bodies

Dynamic, High-Growth Economy Reactive(Little an individual household can do)

Proactive(Responsible for the policy framework, including water)

Knowledge base about water resources

Largely limited to very small geographic scale, site specific

Responsible for systems understanding, but difficult

Table 4 – Summary Comparison of Household and State Perspectives

Page 41: Plenary economic value of water security by Dale Whittington, Claudia Sadoff and Maura Allaire

Concepts

- Economic Value- Water Security- Water Development Paths


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