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Estimating the Economic Value of Drinking Water Reliability in Alberta Open Access


Other title
water reliability
contingent valuation
spike model
risk perceptions
control function
Type of item
Degree grantor
University of Alberta
Author or creator
Appiah, Alfred
Supervisor and department
Adamowicz, Wiktor (REES)
Examining committee member and department
Mohapatra, Sandeep (REES)
Boxall, Peter (REES)
Adamowicz, Wiktor (REES)
Rude, James (REES)
Department of Resource Economics and Environmental Sociology
Agricultural and Resource Economics
Date accepted
Graduation date
2016-06:Fall 2016
Master of Science
Degree level
The overall objective of this study was to provide an estimate of the monetary value of drinking water reliability in Alberta. The study employed the results of an Alberta-wide survey on drinking water reliability. The survey elicited respondents’ experiences with, and risk perceptions of, three types of water outages. Respondents who expressed positive risk perceptions were presented with alternative programs that reduce their risk perceptions to specified percentages, but increased their water bills. Using cost and other program attributes as explanatory variables, a random effects probit model was employed to measure the probability of supporting the programs and to account for unobserved heterogeneities that may be present in the sample. Kristrom’s simple spike model was also used to account for “indifference” to the valuation scenarios. A control function approach was used to account for the potential presence of endogeneity in the absolute and subjective risk reductions of water outages using the respondents’ perceived risk of internet outages as instruments. The survey results indicated that respondents have not experienced many water outages in the last 10 years, but expect significant percentages of them in the next 10 years. Using parameter estimates from random effects probit models for respondents with positive risk perceptions, we calculated a mean willingness to pay (WTP) of $71 per year for at least a 50% reduction in the likelihood of a short-term water outage. Results of the spike models for all respondents, regardless of their risk perceptions, indicate a WTP of $46 per year for at least a 50% reduction in the risk of short-term water outages. Results of control function mixed logit models showed that, given the chosen instruments, short-term absolute risk reductions are endogenous in the models. Controlling for endogeneity slightly increases welfare measures by about 7%.
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