Financing publicly provided goods in less developed countries : a contingent valuation study of potable water services in rural Philippines

The sustainability of development assistance projects in less-developed countries is an issue of preeminent importance. There is no lack of evidence that these projects often fail to remain viable after the initial investment period. Part of this undesirable state of affairs stems from a lack of finance to cover recurrent costs. In an effort to determine unserved households' willingness to pay (WTP) for improved water a contingent valuation study was undertaken in rural Philippines. WTP for water presupposes the choice of the water source, therefore the empirical analysis was motivated by a discrete-continuous model. Regression statistics indicate that both household and water source characteristics are relevant to the interdependent decisions. This finding was confirmed by a similar analysis using actual behavior of served households and villages. Despite the fact the WTP values were substantially less than observed payments, it is argued that the contingent valuation methodology is a viable tool for ascertaining WTP for nonmarket goods. Finally, the comparison of WTP data with water system costs indicated that subsidies are necessary if sustainability is to be achieved.