Water, Water, Everywhere

On a panel at Water Week, I suggested that most of the problems with urban water come from the same source: mis-pricing of water. 

Water is a private good (if I drink a glass of water, you can’t drink it).  Private goods should be priced at their marginal cost.  Because poor people, like everybody else, need water for life, but they may not be able to afford it, governments typically subsidize water—i.e. price below marginal cost.  A subsidy means that somebody other than the consumer is paying the utility to deliver water.  In many countries, this somebody is a politician, who then uses the power associated with the subsidy for political patronage.   Water pipes go to neighborhoods of the politician’s choosing (which may not be where the poor live).   Meanwhile, poor people, because they need water, buy it from water vendors at 5-16 times the meter rate.

Read more