Presentation made by Dale Whittington, Claudia Sadoff and Maura Allaire, GWP Regional Days Meeting, August 22-24, 2012, Stockholm, Sweden

1. The Economic Value of Water
Security
Dale Whittington, Claudia Sadoff, & Maura Allaire
August 24, 2012

3. 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?

4. 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.

5. Intuition vs. Analysis
When is intuition likely to be the most
useful?
Best guide for decisions?

6. Background (1)
Looking at both …
- Regional water resources investments, &
- Municipal piped water and sewer
networks

7. Background (2) - Concepts
• Economic value
• User values vs. system values
• Water security
• Water Development Paths

8. Table of Contents
Introduction
The Economic Value of Water Security: Basic Concepts
The State’s Perspective on the Value of Water Security
Overview
The Role of the State
Water in a Dynamic, High-Growth Economy
The Perspective of the Household on the Economic Value of
Reducing Water-related Risks
Economic Value of Reducing Risks from Floods and Droughts
Economic Value of Reducing Water-related Health Risks
Concluding Remarks: What is to be Done?

9. Four puzzles …

10. 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.

11. Puzzle #2 – Ex-post “Macro Evidence”
on Investments
• Investments in large-scale water resources
management investments → economic
growth, high returns (?)

12. Puzzle #3 – “Micro Evidence” from
Households
• Household demand (willingness to pay) is high
to reduce water-related risks
(floods, droughts, WASH diseases) – right?

13. Annual flood deaths in China, India, and Bangladesh
year by year (1950-2010)
10,000,000
Bangladesh
1,000,000 China
100,000 India
Flood Deaths
10,000
1,000
100
10
1
1940 1950 1960 1970 1980 1990 2000 2010 2020

14. Deaths in High-Income Countries by Age Cohort
Population, 2004
Deaths in High-Income Countries by Age Cohort Population, 2004
Death Rate (deaths per 100,000 of Age Cohort
16,000
WASH-related
12,000
HIV/AIDS
Population)
Resp. infect.
8,000 Other CMPN
Other Injuries
Cardio. Diseases
4,000 Other Non-comm.
0
WHO 2008 Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80

15. Death Rate (deaths per 100,000 of Age Cohort Deaths in Low-Income Countries by Age Cohort Population, 2004
16,000
WASH-related
12,000
HIV/AIDS
Population)
Resp. infect.
8,000 Other CMPN
Other Injuries
Cardio. Diseases
4,000 Other Non-comm.
0
WHO 2008 Under 5 5-14 15-29 30-44 45-59 60-69 70-79 Over 80

16. Puzzle #4
Water Development Paths …

17. Water & Sanitation Coverage vs. GDP

18. Distribution of Capital and O&M Expenses for
Municipal Piped Network Services (among
Donors, Government, and Customers) vs. GDP

19. 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.

20. Water & Sanitation Coverage vs. GDP

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

22. Piped Water Coverage:
China, Brazil, India, Nigeria, & Egypt
100
90
Piped Water & Sanitation Coverage
80 China
70 India
(% Total Population)
60 Brazil
50 Nigeria
40 Egypt
30
20
10
0
1950
1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
Year

23. WASH-related mortality 1950-2050,
by world region

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

25. 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.

26. 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

27. 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.

28. 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.

29. 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.

30. Advice for Government
(Ministry of Finance?)

32. 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)

33. Implications for Government
(Ministries of Finance?)
1) Transparency
- Choice of water development paths
- Clarification of tradeoffs
- Accountability
- Participation
2) Teams of serious people – strategic planning
3) Capacity building – creating strategic thinkers

34. Thank you!
And send your comments/suggestions
to:
ProfDaleWhittington@gmail.com
csadoff@worldbank.org

35. The different perspectives of the
State & the household on water risks
and the economic value of water

36. AttributesAttributes of Municipal Water Services
of Municipal Water Services in
selected Asian cities
350
Consumption/Capita (l/c/d)
300
250 Seoul
200 Hong Kong
Ho Chi Minh
150 Kathmandu
Colombo Quantity
Quantity Quantity Quantity
Quantity
Quantity
Quantity
Delhi
100 Quality Quality Quality Quality
Quality
Quality
Quality
Jakarta
Poor Service 50 High-Level Service
(Very Insecure) (Secure)
0
Quality(%)
- 20 40 60 80 100
-50
Seoul
Hong Kong
-100 Ho Chi Minh
Quantity
Delhi Colombo
Reliable, 24-hour access (% connections)
Jakarta Quality
Kathmandu
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.

37. Annual capital and per capita expenditures in the
Water Industry in England and Wales, 1921-2015
(constant 2011 prices)

38. Households’ Perspective

39. Quantity: 15m3
Level A Reliability: 24hr/ day
Quality: Excellent
Quantity: 10m3
Level B Reliability: 18hr/ day
Quality: Good
Quantity: 12m3
Reliability: 12hr/ day
Level C Quality: Good
Quantity: 5m3
Level D Reliability: 3hr/ day
Quality: Poor

40. Table 4 – Summary Comparison of
Household and State Perspectives
Perspective on … Households State
Economic value of water User value System Value
Investment PlanningComparison of Steps alongand State Perspectives Responsible for choice between
Table 4 – Summary Household a water
development path alternative water development
paths
Economic Value of Disasters Ex-ante Ex-post
(Economic value determined (Insurer of last resort)
before disaster
Non-cooperative behavior Conflicts with neighboring Conflicts with other states on
households shared water bodies
Dynamic, High-Growth Economy Reactive Proactive
(Little an individual household (Responsible for the policy
can do) framework, including water)
Knowledge base about water Largely limited to very small Responsible for systems
resources geographic scale, site specific understanding, but difficult

41. Concepts
- Economic Value
- Water Security
- Water Development Paths