MADDA WALABU UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ECONOMICS

HOUSHOLDS’ WILLINGNESS TO PAY FOR CLEAN PIPED WATER

SERVICE IN URBAN ETHIOPIA; THE CASE OF BALE ROBE TOWN

A PROPOSAL SUBMITTED TO DEPARTMENT OF ECONOMICS IN

PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE
AWARD OF MASTER OF SCIENCE IN DEVELOPMENTAL
ECONOMICS

By: - MEKDES NIGATU (PGDEE0018/11)

ADVISOR: - GEMECHU MULATU (PhD)

BALE ROBE, ETHIOPIA

SEPTEMBER 2020

1
 Acronyms
UNDP United Nations Development Program
WSSA Water Supply and Sewerage Authority
WHO World Health Organization
UNICEF United Nations (International) Children’s’ Fund
WTB Willingness to pay
CVM Contingent Valuation Method
TEV Total Economic Value
HPM Hedonic Pricing Method
CV Contingent Valuation
HH Household
HHH Household Head
LPCD Liters per Capital Per day
WSP Water and Sanitation Program
JMP Joint Monitoring Program
MoWR Ministry of Water Resource
UN United Nations
UNEP United Nations Environmental Program

2
1. INTRODUCTION

1.1. Background of the Study

Water is one of the most valuable natural resources vital to the existence of any form of life.
An adequate supply of safe and clean water is the most important precondition for sustaining
human life, for maintaining ecosystems that support all life and for achieving sustainable
development (Topfer, 1998). Therefore, Safe drinking water is an essential component of
primary health care and has a vital role in poverty alleviation. There is a positive correlation
between increased national income and the portion of population with access to improved
water supply. According to World Bank (1994) as cited by Simiret et al, 2011, an increase of
0.3% investment in household access to safe drinking water generates 1% increase in GDP.
Unreliable supply and shortage of water affect life of human beings in various ways.
Emphasizing the importance of water, Nielson (2004) contends that safe drinking water is not
just a luxury. It often makes the difference between life and death. Access to and use of safe
drinking water has a great contribution to health, productivity, and social development. Fresh
safe water is essential for the survival and well-being of humankind. Access to safe water is a
pre-requisite for the realization of many human rights, including those relating to people’s
survival, education, and standard of living.

However, many people in developing countries continue to rely on unimproved water sources.
According to the United Nations Development Program (UNDP, 2006), nearly one-sixth of
the world’s population, the majority in developing countries, obtains drinking water from
unimproved sources, and in many developing areas, progress in expanding clean water
coverage is modest. In Sub-Saharan Africa, for instance, the proportion of the population that
depends on unimproved sources has declined only slightly, from 52 percent in 1990 to 44
percent in 2004 (UNDP, 2006). As part of the Millennium Development Goals, the
international community has set a goal of reducing the proportion of people without
sustainable access to safe drinking water by 50 percent by 2015 compared to its level in 1990
(UN, 2010).
Even if Ethiopia is frequently said to be the ‘water tower of North-East Africa’ there is a
pervasive problem of safe and clean water. Both the urban and rural water supply and
sewerage coverage in Ethiopia are low. According to the 1994 WSSA statistical review, the
urban coverage for water supply, excluding Addis Ababa, was 65.3% and that of rural areas
was 15%. Even though current figures show improvement in coverage of water supply, there
is a great variation in official Government of Ethiopia figures and internationally accepted
Joint Monitoring Programmed (WHO and UNICEF) figures due to lack of reliable data.
Official reports show access to water supply at 68.5 % - 81.5% for urban and 65.8% for rural.
Access to sanitation facilities is reported to be 60%. The same report highlights hand washing
practice at 7% and open defecation at about 15%. The JMP figures, however, show that
Ethiopia has among the lowest rates of safe water coverage in the world with only 41%. Out of
this 31% of the rural and 96% of the urban population is using an improved drinking water
source. The national sanitation coverage is only 11% out of which 27% urban and 8% of the
rural population are using an improved sanitation facility (Water Aid, 2011-2016). The
problem is not only in terms of coverage it is multidimensional; acute in terms of quality,
distribution and frequency of interruption in the supply of water in both rural and urban areas
of the nation.

To improve access to safe clean water, the government of Ethiopia has prepared a water and
sanitation policy document as an integral part of the country’s water management policy. This
document clearly indicates the right of every Ethiopian to get access to adequate and quality
water to satisfy their basic needs in order to achieve rapid socio economic development
through better health care and productivity (MoWR, 1999). In this document, to improve the
financial base needed for water development projects and other public undertakings, cost
recovery mechanism was considered as one of the basic drinking water project financing
mechanisms.

Robe town has a critical water-supply problem. However, the existing water supply is unable
to meet the current water demand in the city. The rapid population growth aggravated the
water problem of the city. To improve the water supply situation of the town the old boreholes
need rehabilitation. The pumps and all the pipelines also need replacement. The construction
of additional boreholes is also needed to fulfill the current demand.

However, all these activities require high capital outlays. The service beneficiaries are required
to pay for the improved water services. Thus, to improve the water supply situation of the
town, demand side information is highly required. This demand side information enables
policy makers to design appropriate water tariff that is consistent with government policy and
enhance the long- term viability of the service.

Robe town, located in southeast Ethiopia, which is in Oromia region Bale zone. Water supply
in Robe does not meet demand, and sanitation coverage needs to improve. Many households,
schools and health institutions often lack water and basic sanitation facilities, which has had
drastic implications for the public health.

1.2. Problem of the Statement

Water and urbanization are closely linked that the problem of safe and clean water inhibits
further urbanization and improvement of standard of living. The situation becomes most
drastic when we take urban areas in the developing world where governments are the only
stakeholders, with very limited financial resources, in the water supply sector. Most towns and
cities in Ethiopia are good indicators of this problem. The fast growing towns and cities are
not coupled with improved water and sanitation services that make an urban area decent and
suitable for its residents.

Robe town is one of those cities with a lot of shortcomings in the water supply sector. Demand
outstrips supply in the town; the existing supply could not satisfy the demand of the fast
growing population in the town. Both frequency of service interruptions and the average
duration of an interruption are surprisingly high. Piped water supply may be interrupted for a
couple of weeks with a higher frequency throughout the year. Water loss and non-revenue
water are included as key water supply problems of the town (Andrea C. et al, 2009). The
researcher himself is one of the victims of this water shortage problem as a dweller in the town
for the last three years. Because of the stated problem, the active labor force is wasting its
significant time by fetching water from unimproved sources, which has a negative implication
in the production sector, and the quality of water from those sources is deteriorating. One way
of improving water quality is expanding the piped water system, i.e. water supply through a
household connection. It is the final and most effective way of reducing the transmission of
water borne diseases (Hutton and Haller, 2004).

As indicated by Medhin (2006) since piped water supply is not a natural system as it is a man-
made infrastructure, it needs huge amount of money and effort to make it quite accessible in
both quantity and quality. The investments (to build, operate, sustain and maintain) turn water
to an economic good and not only as a social service. Due to lack of finance and trained
manpower, however, governments of poor countries have limited potential to make water
easily accessible to its people. Therefore, the public utilities have to come up with a new
paradigm shift from their supply-driven policy to demand-driven based on the willingness to
pay of consumers.

As pointed out above drinking water and sewage services are generally provided by either a
local government agency or a regulated firm. In either case, explicit decisions must be made as
to the appropriate mix of service quality and price. Water service interruptions can occur due
to unexpected emergencies or system failures, as well as for planned maintenance. The
expected frequency, timing, and duration of interruptions can be affected by the capital
investments and operations of the supplier, with higher levels of service generally being
attainable through higher costs and hence higher prices. For wastewater, the analogous issue
concerns overflows: reducing the expected frequency and time to repair overflows incurs a
cost, which translates into higher prices for customers. To determine the appropriate level of
these services attributes relative to price, information is needed on the value that customers
place on each attribute (Hensher et al, 2005).

Lack of access to safe and clean water is locked in the heart of the poverty. Even though the
issue of water is observed as a general problem for both the urban and the rural population,
women bear the greatest burden because of their social gender roles including collecting water
for their households (Rose, 2009). Because of their task of water provision at the households,
women and children suffer from disease, have limited participation in education, and both
income generating activities and engagement in cultural and political issues are often
compromised. Several studies have been carried out to analyze people's perception and attitude
about the drinking water source quality and accessibility. Creating good community awareness
about water quality issues and the associated problems like sanitation and hygiene services is
important to alleviate health effects but it remains below the expected rate of coverage.

The present water pricing policy in the city contemplates on the supply-driven approach and
seems to ignore the demand-driven approach which takes consumers’ preferences as measured
by their willingness to pay (WTP). The residents are saying “why we suffer from water
problem while we have the ability and willingness to pay for it”. The realization of such policy
decisions should also focus on the demand as opposed to supply side there by adjusting pricing
mechanisms and considering the willingness to pay of the residents for the purpose of cost
recovery. Valuation of water service is the key component of an appropriate incentive for
balanced and coordinated investment development in the different parts of the city.
Furthermore, the need to fill the gap of information on the demand side for policy purpose is
timely. Hence, research on the demand side in order to realize the essential substance of the
value of water service is vital. This research therefore endeavors to examine some of the
factors that affect the willingness to pay for improved water services in Robe, Ethiopia. It also
aims at presenting empirical estimates (regression elasticity) to specify and explain the impacts
of some factors on the willingness to pay for improved and sustainable water supply in the
same area.

1.3. Objectives of the Study

The main objective of this study is to households’ willingness to pay for clean-piped water
services in Ethiopian by taking Robe town as a case study.

The specific objectives are-

1. To elicit households’ willingness to pay for improved clean water services from
hypothetical market scenario using CVM;
2. To examine determinants of households’ willingness to pay for improved water
services in Robe town;
 3. To to calculate aggregate benefit and policy implications to the existing situations of
the town.

1.4. Significance of the Study

Due to big investment, operation and maintenance costs it is hardly possible for the
Government to provide safe potable water services free of charge. The water service users are
required to pay for the service they get from the improved source. Thus, information on the
amount of money the service users are willing to pay for the improved service is essential for
improved water development projects. In this study, the amount of money the residents of
Robe town are willing to pay for clean water services they get from the improve system and
factors that determine their willingness to pay will be assess. Therefore, the findings of this
study give useful information for project planners that will be used as an input for water
development projects of the town. Generally, the study will be an important additional input
for different stakeholders working in the water supply sector.

1.5. Scope of the Study

Even though users of the improve water service include public bodies, commercials, and
industrial users, this study, however, deals only with improve water services of households in
Robe town using cross-sectional data at a point in time. The water use by public bodies,
commercials, and industrial sectors in the city are not addressed in this study, it is, therefore,
beyond the scope of this study. The sample size will be limit to few respondents from four
kebeles of the town administration because of time and budget constraints.

1.6. Limitation of the study

The methodological scope of the study was relied on cross sectional survey research design
collected in 2020 and analyzed for academic purpose. However, this study reflects only the
direct use benefits to the consumers and the external benefits to the society and the economy at
large are not covered. Furthermore, this research employs contingent valuation method (CVM)
so that it is subject to all the limitations associated with the method, though efforts have been
made to minimize the limitations. Besides lack of research studies and availability of sufficient
current literature in country context on the households’ willingness to pay for clean-piped water
services in Ethiopian are some limiting constraint.
2. REVIEW OF RELATED LITERATURE

2.1. Theoretical Review

In this sub-section, a review of the literature on economic valuation of environmental

resources will be presented. The section also deals with the theoretical foundation for the
techniques that economists developed for valuation of natural resources and the environment.

2.1.1. Non-Market Valuation

Theory of environmental resources valuation has encouraged economists, both in intensity and
scope, in valuing an increasing number of environmental goods and services around the world.
Increasing complexities, in designing procedures and analytical structure, have enhanced the
optimism of economists about using non-market valuation as a basic instrument to assist
decision-making. Practically, non-market valuation faces a critical problem in understanding
how people perceive these services and how they value changes on the genetic, species,
regional and global scale. (Hanley et .al, 1997)

Depending on various circumstances, economists place total economic value on either stock or
flow of natural resources. Total economic value (TEV) can be divided into three main
components, namely, the use value, option value, and non-use value. The use value refers to
the direct benefits human beings obtain from environmental resources. The option value
reflects the value individuals give to the future uses of environmental resources. That is, it
indicates individual’s willingness to preserve environmental assets for the future uses even if
s/he does not use these resources currently. The non-use value reflects that people are willing
to pay to improve or preserve environmental resources that they do not use and will never use.
Thus, total willingness to pay for environmental resources is the sum of the use value, option
value and nonuse value (Tietenberg, 2003).
 2.1.2. Valuation Methods

Theoretically, the total value/ benefits of some environmental improvement such as improved
water can be classified into two categories. Total Economic Value = Use Value +Non-use
Value. Use value comprises direct and indirect value, which is simply “value in use”, option
value, quasi-option value and bequest value. For example, people use a clean river for
swimming, boating, drinking or bathing. An environmental resource is said to have a quasi-
option value if the future benefits it might yield are uncertain and depletion of the resource is
effectively irreversible. In brief, one would be willing to pay to preserve the resource simply
because it might prove valuable at some time in the future. Option value was seen to arise
when an individual was uncertain as to whether he would demand a good in some future
period and was faced with uncertainty about the availability of that good. Non-use values also
comprise of bequest value and existence value. Consequently, even if a certain environmental
good has neither use value nor option value, people can still protect it because they believe
that all creatures have the right to exist, hence, the existence value.

Economists have, in recent decades, developed various valuation techniques to estimate the
value that consumers place on public goods. These methods can be distinguished based on the
process by which they retrieve people’s preferences (Brima. 2003).

 Non-preference methods, which include shadow cost method (opportunity costs) and implicit
valuation.
 Revealed preference methods, which include Travel Cost Method (TCM), Hedonic Pricing
Method (HPM), Averting Behavior Method, and Production Factor Method.
 Expressed Preference Method (direct approach). Survey method using Contingent Valuation
Method (CVM) is an example for this category.

Non-Preference Methods

This method suggests that water works may lead to a drop in the ground water level as well as
altering the ecosystem and its productive potential. Under such circumstances, consumer price
must be set to reflect not only the production costs but also the costs in terms of the
environmental impacts of resource extraction. The price must equal the marginal opportunity
cost, which is also equal to the long run marginal cost, plus the external cost of water
extraction and forgone benefits of future users. The price must be set in such a way that poor
people can also afford the service and at the same time sustainability is maintained. However,
it must be noted that this approach is beyond the scope of this study because long run marginal
cost and marginal opportunity cost requires extensive information on externalities and the
forgone benefits.

Preference Methods

The Revealed and Expressed Preference methods are explained in this sub section. In
circumstances where markets for environmental goods are absent, not fully developed, or there
are no alternative markets, it becomes impossible to value the impact on the environment of a
particular project by using the market. Given this condition, it is possible to estimate implicit
values for such goods or services by means of the price paid for another good that is marketed.
Three valuation techniques that are commonly used are the HPM, TCM and CVM.

Hedonic Pricing Method

The hedonic pricing approach has been used extensively to estimate the value of property and
housing prices (Blomquist and Worley 1981; Rosen 1974). It assumes that a good (or service)
can be fully characterized by its attributes, that consumers have very good information on the
attributes of goods, and that price differentials reflect the values of different attributes of
goods. For example, in housing markets, the price of a house can be broken down into the
value of its main attributes, that is, physical structure, age, number of rooms, neighborhood
characteristics, quality of neighborhood schools, accessibility to work, crime rates, and
perhaps some measure of the quality of local drinking water, air quality, noise pollution, and
aesthetic views. Assuming each of these attributes has an associated implicit price, the market
price of the property is equal to the sum of the implicit prices, multiplied by measures of the
attribute. The application of the hedonic pricing method to capture the effect on prices of
improvements in environmental quality requires observations of sufficiently varying quality
levels within the confines of a single housing market (Leggett and Bockstael, 2000).
Korman (2002) notes the limitations of the hedonic pricing method for valuing water quality
improvements in Famagusta, Cyprus, mainly on account of the fact that water quality did not
vary sufficiently across the single markets or locations. The method could still be applied if
the geographical domain of the analysis were extended to capture more variation in water
quality. Water is, however, not location specific (Whitehead and Van Houtven 1997), and
everyone generally has access to the same level of water quality at the village or even regional
level.

Travel Cost Method

Analysts rely extensively on the travel cost method to place a value on outdoor recreational
locations such as national parks and fishing and hunting sites. This method relies on
observations of people’s behavior, particularly expenditure for transportation and other trip-
related expenses incurred when traveling to and from the site of interest. Moreover, it
calculates the benefits derived from the specific site and uses this information to find optimal
levels of service provision (Bishop and Heberlein, 1990). The method is, however, more
appropriate for valuing recreational sites than for estimating the WTP for improved water
services. In fact, households often use various alternative sources to maintain a certain level of
water quality, for example, municipal and private tankers for non- drinking water and private
vendors and bottled water for drinking purposes.

Measuring the value of the time spent carrying water from the specific site may not provide a
complete picture, and other non-transportation costs (for example, investments in storage and
pumps to cope with intermittent and poor quality public water) should be considered. In this
respect, the travel cost method can be seen as a special case of averting expenditure in that it
focuses on a particular type of expense only, namely, travel. Though likely to provide a lower
bound (or conservative) estimate of the WTP only, the method may still be a practical and
easier alternative to the more demanding methods discussed in the following sections (see
Whittington, Mu, and Roche 1990 for an application to water provision in Kenya).

Contingent Valuation Method (CVM)

 When market data are unavailable or unreliable, economists can use alternative estimation
methods that rely on hypothetical market conditions which typically use survey to inquire
about individuals WTP for some environmental policy initiative.

The CVM involves asking people directly what they would be WTP or WTA compensation
for change in preferences and the method is called contingent valuation for it is contingent on
the hypothetical market. The CVM is preferred to the revealed preference methods for it
includes both use and non- use values and survey responses to WTP or WTA hypothetical
questions go directly to the monetary measures of utility change (Perman et al., 2003, p. 420).
Further, the CVM has ease of flexibility and therefore, it is the only technique theoretically
capable of estimating the benefits produced by water quality improvements, including non-use
values. Thus based on the reasons mentioned above CVM is employed for this study.
However, it has its own limitation relative to the other stated preference method such as choice
experiment (CE). For example, CVM is not doing better than CE in measuring the marginal
value of changes in the characteristics of environmental goods. Further the CE may avoid
some of the response difficulties of the CV such as a Yea- saying tendency of respondents in
dichotomous choice design and incentive incompatibility (Perman et al, 2003).

The major steps involved in using Contingent valuation (CV) Survey

1. Designing and administering a CV survey that elicits individual’s value for a good or
service.
2. Analyzing WTP responses
3. Estimating aggregate benefits and total revenue
4. Evaluating the CVM exercise (validation tests)

Even if CVM is being used by different researchers, it has associated biases. According to
Titenberg (1998) as cited in Bah’s work, a major concern with the use of CVM is the potential
for survey respondents to give biased answers. The major types of biases are:-

 Strategic Bias: this occurs when a respondent does not reveal his/her true preference of the
good or service, i.e., he behaves strategically with the hope to “free ride”.
 Information Bias: this can arise either because of providing too little information about the
choice offered or from misleading statements by the interviewer.
 Compliance Bias: this happens when respondents in a particular cultural context feel it
inappropriate to answer some kind of questions in specific ways or may attempt to give
answers that they think will please the enumerator. This form of bias can result in substantial
differences between reported and true WTP values.
 Hypothetical Bias: the potential error induced by confronting the individual with an
imaginary situation, i.e., people would not behave the same way in actual market.
 Starting Point Bias: this occurs when the respondent’s WTP amount is influenced by a
value introduced by the scenario.
 Sampling (interview and respondent) Bias: this occurs when the very character of the
interview or interviewer may influence responses. For example, if the interviewer in some
way portrays the environmental good as morally desirable, or if the interviewer is highly
educated (or attractive) then the respondent may feel inhibited about expressing a low WTP
bid.

However, despite the above-mentioned biases, the CVM generally has many advantages.
According to Hoevenagel (1994), the CVM has the following strong advantages over the other
methods.

The applicability of this method is larger compared with other valuation methods in terms of
completeness.

 It is able to measure a wide range of goods, including those not yet supplied in a manner
consistent with economic theory.
 The method can measure non-use values.
 CVM has been judged to be superior due to its potential validity and ease with which the
method can be implemented.

Contingent valuation (CV) elicitation formats

The most widely used elicitation formats in CV surveys are open-ended, bidding game,
payment card and single (double) bounded dichotomous choice (Hanley et al., 1997).
Open-ended format –a CV question in which respondents are asked to provide the
interviewer with a point estimate of his/her WTP; it has the advantage of relative
computational easiness and counter starting point bias. However, the method is associated
with a large number of respondents’ non-responses and protests zero bids. Mitchell and
Carson (1989) further argue that the method is difficult since respondents faced to pick a value
out of the air without some form of assistance.

Closed-ended approaches (dichotomous choice question)-asked respondents whether they

would pay a stated amount for the good in question by providing intervals in which the
respondents WTP lies. This method is advantageous over open- ended question format in
eliciting WTP because of the simplicity of “yes “or “no” answers for the respondents and thus
reduce incentives for strategic responses (Bateman et al., 1992). It has also advantage of being
much more similar to the choice that individuals are asked to make in real markets when faced
by market prices. However, it suffers from starting point bias, shortage of information,
reducing efficiency and requirement of large sample to estimate benefits as maximum WTP is
not directly obtained from this format. This study uses both closed ended (double- bounded)
and open- ended formats.

Bidding game – is a CV question format in which individuals are iteratively asked whether
they would be willing to pay a certain amount, by raising (lowering) the amount depending on
the respondents WTP for the previous offered amount. It has a better efficiency than closed-
ended format because it has a potential to elicit the respondents maximum WTP (Cummings et
al., 1986) and that the iterative process helps the respondents to fully consider the value of the
good in question (Hoehn and Randall, 1987). However, the method exhibits very strong
starting bias and may be boring to the respondents and thus they may give answers only to
avoid additional questions.

Payment card-is a CV question format in which individuals are asked to choose a WTP point
estimate (or an interval) from a list of values predetermined by the surveyors and shown to the
respondent on the card. This method is better than open- ended format as it could be simpler
for the respondents and large proportion of responses could be obtained. However, the method
 requires the respondent to be literate that makes it of little use in developing countries where a
considerable proportion of the population is illiterate.

In general all methods that we have discussed, either stated or revealed preference methods for
non- market valuation, that are used for measuring the benefits of water related public goods
have their own strength and shortcomings. As indicated above the revealed preferences
methods are used to estimate people’s WTP for environmental public goods from actual
consumer behavior and hence failed to capture non-use values of environmental resources and
thus are inadequate for assessing new policy initiatives (Young, 2005, p. 156). But the stated
preference methods such as CVM is used to estimate both use and non-use values and also
used to estimate values of proposed new policies (Young, 2005) , and this indicates that CVM
can measure the total economic value of improved water projects. That is the reason why in
1979 the U.S.A. Water Resource Planning Council recommended the CVM as an acceptable
method for estimating the benefits of water resource projects (Young, 2005). Therefore, CVM
is the appropriate method for valuing improved water supply of Robe town.

2.2. Empirical Review

Different studies, in the water supply sector, have been conducted in different times by different
researchers using the contingent valuation methodology to elicit households’ willingness to pay
for improved water services. Some of them can be revised as follows. Yibeltal (2011) used the
CVM to examine the determinants of households’ WTP for improved water services in Motta
town. The elicitation method used in this study was double- bounded dichotomous choice
followed by open–ended questions. Households’ WTP for improved water service was analyzed
by estimating the Probit and the Tobit models.

The explanatory variables quality of water being used dummy (1 if not safe to drink or poor),
reliability of the existing water service dummy (not reliable=1), education dummies (both
primary and tertiary education), income of the household, wealth of the respondents and their
years of stay in the town were significant factors that affect positively households’ probability
of saying ‘Yes’ to initial bid offered to them. Initial bid offered to households, age of the
respondents and source of water being used by households have negative expected sign and
have significant effect on the probability of saying ‘Yes’ to the proposed initial bid. The results
from the Tobit model showed that the quality of water (1 if poor), reliability (1 if not reliable),
education dummies (primary, secondary and tertiary educations), income and years of stay in
the town positively and significantly affects the maximum amount household willing to pay.
The variables responsible organ (1 if government), source of water (piped=1) and age have the
expected negative sign with a statistically significant influence on the maximum willingness to
pay of households.

Mourato and Day (1998) estimated value of water quality in the Beijing Metropolitan local
rivers using the CVM survey analysis. A carefully designed CV questionnaire was administered
with a random sample of 999 people in the Beijing area. The study reported the annual average
WTP per household to maintain water quality in all rivers in Beijing metropolitan region to be
US $22. Gossaye Fanta (2007) used the CVM to examine the determinants of households’ WTP
for improved water services in Debre-Zeit town. The elicitation method used in this study was
single- bounded closed-ended followed by open–ended questions. Households’ WTP for
improved water service was analyzed by estimating the Probit and the OLS methods.

The coefficients of age, household size, volume of water used, reliability of existing water
services, the starting bid, and household average monthly income had the expected signs and
were statistically significant. The coefficients of education dummy, quality dummy, gender
dummy, and satisfaction dummy variables had the expected signs but were not statistically
significant.

A similar study was also made by Medhin (2006) using a CV survey on household demand for
improved water services in Addis Ababa. This study used 250 sample households and the
single- bounded format with open-ended follow up questions was elicitation methods used in
this study. She used Probit and Tobit models to analyze the determinants of households’ WTP
for improved water services.

In the Tobit model income, education and satisfaction facility were found to have a positive
sign and significant, whereas perceived quality, age and water related diseases were negative
and significant at the standard level of significance. Concerning the Probit model, income,
education, marital status water related diseases and years of stay in the area positively affect
the probability of accepting the initial bid. The findings further indicated that the mean WTP
was found to be 20 cents per Baldi (20 liters container) from single bounded probit model
estimates and 15.79 cents per Baldi from the open-ended format. Tsegaye (2005) used CVM
by applying double-bounded format to elicit the WTP of fishermen to the improvement of
Lake Chamo. The mean WTP is birr 4.63 per month. His analysis showed that there is a
positive and significant correlation between WTP and income of households, educational level
of the respondent, and the dummy variable Chamo. However, the response is negatively and
significantly correlated with the age, and sex of the respondent (male). Terefe (2000) adopted
the CVM and travel cost (TC) models to estimate benefits from establishment of park around
Tis Abay waterfalls. He analyzed the responses by multiple linear regression, Tobit and Probit
models and the results revealed that, for the visitors’ benefits, the CV produced higher
estimates than the TC estimates as the CV estimates consider the non-use value of the
commodity to be valued unlike the TC estimates. The findings showed that conducting
successfully the CVM and TCM surveys would give useful information on users demand for
the public good.

Mitchell and Carson (1989) conducted a study to determine the national benefits of fresh water
pollution control in America and estimating the aggregate benefits of meeting the goals of
clean water act using data from a national CV survey. They regressed total WTP on water
quality level, disposable income, taste; water based recreational use (dummy) and
environmental attitude (dummy). The result shows that all the coefficients are reasonable in
sign and all significant, confirming the importance of peoples attitude towards their WTP for
improvement in the public good. Tsegabirhan (1999) used CVM for investigating farmers
WTP for irrigation water in Tigray, Ethiopia using OLS and Ordered Probit regression models.
The study estimates WTP of smallholder farmers for irrigation water particularly for small-
scale irrigation schemes. The survey results included the main irrigation seasons and the whole
year which depends on 0.25 hectares of irrigable land. The study used a sample of 82 out of
1071 household heads. The findings of the study showed that 90% of the respondents were
willing to pay up to birr 600 for the main irrigation system alone.

The study further indicates that credit availability, education and fertilizer supply are major
determinants of respondents’ WTP. In addition, due to smaller sample size the estimated
sample variance increases which could be why many of the variables were found statistically
insignificant.

In general, these and other CVM empirical studies on water quality improvement and other
non- marketable environmental goods and services in developing economies in general and
Ethiopia in particular imply that the CVM can be successfully applied to low income
countries.
3. RESEARCH METHODOLOGY

This chapter will be describes the sources of data, the research design, the characteristics of
the study population, sample and sampling techniques, data collection schedule, and statistical
tools used in the study. It explains the type of data used for the study and the techniques
employed in identifying the households’ willingness to pay for clean-piped water service that
requires a reliable measure of water consumption, in addition to information about factors that
are hypothesized to influence it.

3.1. Description of the Study Area

3.2. Type and sources of data

3.3. Methods of Data Collection

Estimation of water demand relationships requires a reliable measure of water consumption, in

addition to information about factors that are hypothesized to influence it. One of the
difficulties that analysts attempting to estimate household water demand functions in
developing countries face is that water meter readings often are unreliable. Many-piped water

Systems in developing countries do not provide 24-hour service due to frequent service
scrambles or service breakdown. When water service in a piped distribution system is
intermittent, the water pressure fluctuates. Meters typically will not provide accurate readings
because air intermittently enters the pipes, such that the meter may register water as passing
through when in fact it is only air. Also, because water prices are so low in many places, and
because corruption is common (Davis 2003), water utilities have little incentive to keep meters
in good working order; nor are they replaced on a timely basis. The result is that in many cases
no one (not the utility, not the household, and certainly not the researcher) really knows how
much water a household is using.

Second, because information on the quantity of water used is often not available (even from a
utility) or of poor quality if in case available, researchers have typically relied on cross-
sectional surveys of households in the community under study.
It is possible to use cross-sectional data in regression models to determine associations
between the source chosen (and the quantity of water used) and covariates such as household
income, housing type, education levels of household members, and the collection costs of
water. However, there are problems with cross-sectional data. Nevertheless, most researchers
seeking to estimate household water demand functions in developing countries have used data
from cross-sectional household surveys.

Both primary and secondary sources of data will be used for this study. The primary sources of
data will detail HH survey and focus group discussions. Before the survey will conduct,
individual discussions will be held with key informants such as experts in the water supply
office of Robe city administration and other knowledgeable experts, elderly people in the town
and women who are responsible for collecting water.

The mapping of the survey household (HH) will be uses the researcher and the data collecting
team. 212 households will be including in the sample. Data collection will conduct in the
houses of the survey HHs. At the end of the formal interviews, respondents will ask if they are
willing to participate in the focus group discussions.

Discussions will held by the researcher and the enumerators with different groups of
household head (HHH) who responses the questionnaires. Informal interviews and talks will
be also held by the researcher with key informants such as elderly people, civil servants,
community and religious leaders and women of the town. The discussions that will be held at
the different stages of data collection help in order to acquire pertinent information about the
different qualitative factors that affect residential water demand in the town.

Secondary data will acquire from the literature of pertinent electronic and documentary
sources such as the internet, unpublished materials, statistical abstracts and the regional, Zonal
and Woreda offices of Ministry of Water Resource Development (MoWRD).

3.4. Methods of Data Analysis

In almost all studies performed in industrialized countries, the residential water demand
function is specified as a single equation linking tap water use (the dependent variable) to
water price and a vector of demand shifters (HH socioeconomic characteristics, housing
features, climatologic variables, etc.) to control for heterogeneity of preferences and other
variables affecting water demand (Agthe and Billings, 1980). However, some studies have
estimated separate water demand models, one for piped water and the other one for non-piped
water, as quality of the water from the piped network may differ from quality of water
collected from a private well or from community sources such as rivers or springs, (some of
which are non-protected). Consistency of estimation techniques relies on the randomness of
the samples considered.

The data will be entering using direct entry method in to the SPSS 16.0 software. Then
screening and cleaning of the data will make using the enter and check method, differentiating
between categorical and continuous variables. In order to check for errors, inspecting the
frequencies of each of the variables for minimum, maximum, mean scores and valid and
missing cases as well as case summaries and checking how many cases fell in to each of the
legitimate categories and how many cases have out of range values will be done. When errors
are found sorting cases or finding error values using find box of the SPSS data editor will use
to find and correct out of range and unusual observations (Pallant, 2010). Preliminary analysis
will undertake to identify potential outliers and unreasonable observations (e.g., HHs with a
water bill higher than the expenditure/income declare).

3.5. Specification of Statistical Model

Most of the models that are employed in residential water demand study both in the developed
and developing countries are regression models. They typically use the form Q=f (P, Z) where
P is the price variable and Z are factors or a range of shifters of demand such as income,
household demographics and other characteristics such as weather variables, etc. (Arbues et
al., 2000).

For this study two types of regression models will employ, namely the logistic regression for
the water source choice decision and standard multiple regression models for the water
demand analysis of the survey households.
The purpose of the Logistic regression procedure is to model the dependence of a nominal
categorical response on a set of discrete and/or continuous predictor variables. Subpopulations
are defined by the cross-classifications of either the set of independent variables specified in
the command or the set of independent variables specified in the SUBPOP subcommand.

Let ni be the marginal count of subpopulation; i

J
ni = ∑ nij
j=1

If there is no observation for the cell of y= j at subpopulation i, it is assumed that nij = 0,

provided that ni ≠ 0. A non-negative scalar δc Î[0,1) may be added to any zero cell (i.e., cell
with nij=0) if its marginal count ni. is nonzero while the value of δ is zero by default.

3.6. Validity and reliability of instruments

To check accuracy, consistency and completeness, reliability of the instruments will

establish by using Cranach’s coefficient Alpha test.

3.7. Hypotheis and definitions of Variables

 4. TIME SCHEDULE AND BUDGET FRAME

4.1. Time Schedule

N Activates Month in the year 2020/2021
o Jul Sep Nov De Jan Fe Marc Apr Ju
y t c b. h il ne
1 Title selection


2 Draft research proposal
development
 
3 Final submission proposal


4 Compiling review life rapture


5 Development questionnaire and
interview

6 Data collection


7 Data analysis


8 Report Writing the research paper


9 Submitting the final research


10 Research presentation

4.2. Budget Allocation

Expenditure item Quantity Unit Total
needed price cost
1. Pen 1 200 200
2. Pencil 2 50 100
3. Rubber 4 25 100
4. Paper 14 260 3640
5. CD-RW 1 340 340
6. Flash disk 5 248 1240
7. Note book 20 25 500
8. Photocopy 4000 1 4000
9. Data collectors per diem 8*10 179 14320
10. Internet services 100 20 2000
11. Transport costs 50 30 1500
12. Researcher , enumerators and data collection 4 450 1800
supervisors per diem
13. Printing costs 5 260 1300
14. Laminating and related costs 5 400 2000
15. total 30700

5. REFERENCES

Acharya, G. and Barbier, E. (2002). “Using Domestic Water Analysis to Value Ground water
Recharge in the Hadejia-Jama’ Flood plain, Northern Nigeria.” American Journal of
Agricultural Economics, 84:415–26.

CIA (2009). World Fact Book, available at www.cia.gov/publication/the- world-fact-

book/geos/et.html.

Basania, M., Ishamb, J., Reilly, B. (2008). The determinants of water connection and water
consumption: Empirical evidence from a Cambodian household survey. World Development
36(5), 953—968.

Aschalew D. (2009).Determinants of Household participation in water source management:

Achefer, Amhara Region, Ethiopia, MPS thesis, Cornell University, NY, USA.

OECD (1999). Towards more sustainable Household Consumption Patterns: Indicators to

Measure Progress, Organization for Economic Cooperation and Development, Environment
Directorate, Paris. Available at http://www.sciencedirect.com. Proxy. Library. Cornell.
edu/science.

MoFED (2007). A Plan for Accelerated and Sustained Development to End Poverty (PASDEP),
Ministry of Finance and Economic Development of Ethiopia, Building on Progress; Annual
Progress Report, 2005/06, Addis Ababa.

PCCE (2008). Population and census commission Ethiopia; Summary and Statistical report of
the 2007 population and housing census; population size by sex and age, Addis Ababa.

Pearce, D. (1999). Pricing Water: Conceptual and Theoretical Issues, Paper for European
Commission for the Conference on Pricing Water: Economics, Environment and Society.
Portugal: Sinatra.

World Bank (1993). Water Demand Research Team, The demand for water in rural areas:
Determinants and policy implications, The World Bank Research Observer, Vol. 8, No. 1, pp.
47-70.

World Bank (1995). Urban Planning and Environment in Sub-Saharan Africa, UNCED Paper,
no. 5.

World Bank (2009). Water and Sanitation Program (WSP): Guidance Notes on services for the
Urban Poor: A Practical Guide for Improving Water Supply and Sanitation Services.

FDRE PCC (2008). Summary and Statistical Report of the 2007 Population and Housing
Census: Population Size by Age and Sex. Addis Ababa: FDRE PCC.

Medhin (2006) .Household Demand for Improved Water Service in Urban Areas: The Case of
Addis Ababa, Ethiopia. A thesis submitted to the school of Graduate Studies of Addis Ababa
University in partial fulfillment of the requirements for the Degree of Master of Science in
Economics (Environmental and Resource Economics).

Mekelle City Administration (2008). City Profile of Mekelle, 1872-2008. Mekelle City
Administration.
WHO and UNICEF (2004). Joint Monitoring Programme for water supply and sanitation;
meeting the MDG drinking water and sanitation target: A mid-term assessment of progress.
WHO, Geneva. ISBN: 92 4156278 1.

World Bank (2007). Ethiopia urban water supply and sanitation project, Report No: 391 19
Washington, D.C.: World Bank.