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Title: Does information and trust affect willingness to pay for water? A case study of Michigan
Citation Type: Conference Paper
Publication Year: 2023
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Abstract: Clean and affordable water is a necessary requirement for maintaining public health. Experience from the recent pandemic further reinforces the importance of water quality and water affordability. However, recent trends in the US suggest that the cost of water and wastewater services is rising three times faster than other goods and services at a time when economic inequality is increasing (Cardoso and Wichman, 2020). The higher cost of these essential services can raise equity issues due to the burden these charges place on low income and disadvantaged people. Recent literature finds significant evidence of disproportionate impact of these rising bills on economically vulnerable populations as they struggle to pay an increasing share of their disposable income for these services, and sometimes non-payment results in utilities shutting off the water service (Read et al. 2020, Sarango et al. 2023, Swain et al. 2020, Onda and Tewari 2021). Thus, understanding spatial and temporal patterns of household water and sewer costs, and groups impacted by these changing patterns within a complex social and demographic context is important for designing better water governance. While water affordability is an important issue, there is no consensus in the literature to measure affordability. Several studies analyzed the access to water and water affordability, but to our best knowledge, only two studies focus on affordability at a national scale (Cardoso and Wichman 2020, Mack and Wrase 2017). Both of these studies indicate that a significant proportion of households in the US (14% and 11.9%) face affordability concerns. Since water is an essential good, rise in cost of water and sewer services (WSS) often involves tradeoff involving other essential goods for poorer households. Along with affordability concerns, an added concern is the spatial and racial clustering of these households. African American households typically have lower median income compared to whites and are more likely to be impacted by the burden of higher cost of WSS. Related literature regarding complete plumbing access also finds similar pattern – among unplumbed households, households that are headed by African Americans are more likely to lack piped water (Meehan et al. 2020, Mueller and Gasteyer 2021). Given that in the US, there are no national standards to protect vulnerable population against water shutoffs and there are no federal policies governing water affordability (Jones and Moulton 2016, Mack and Wrase 2017), the first objective of this paper is to gather more evidence on water affordability challenges and trends of water affordability among households headed by African Americans. On one hand several households are struggling with paying an increasing share of their disposable income on water and sewer services, on the other hand, the water utilities and the wastewater treatment plants are facing their own set of challenges. The utilities are struggling with aging infrastructure that is costly to repair, and the pace of inflation in recent years is further driving up cost of infrastructure replacement, repairment, and maintenance. Moreover, inadequate revenue, water quality challenges, increased regulation and newly identified public health risks make it difficult to maintain affordable services along with a functioning water system. The problem gets more pronounced for legacy cities, commonly referred to as shrinking cities. Due to large peak populations, the physical footprint of infrastructure in these cities is often greater than what is needed to support the existing population. Since the water utilities and treatment plants rely upon rate revenue to meet operating and capital needs, the heavy financial burden of the legacy cost leads to challenges for both end-users in terms of higher rates and the utilities in terms of funds for maintenance. The second objective of this study is to provide an overview on water affordability across the US with a focus on legacy cities. With our discussion so far, it appears there is a tradeoff between water affordability and maintaining water quality at a publicly acceptable level. However, literature indicates that public perception can play an important role by bridging this gap (Osman et al. 2019, Ormerod et al. 2019, Faust et al. 2018, Pieper et al. 2022). Rising concerns can potentially impact relationships between communities and utility managers, which can spill over to cause more friction in society and result in distrust among communities. Thus, awareness about the benefits of utilities and a mutual trust between utilities and communities are essential to building a resilient water utility management policy. The success of resilience-based management depends on, and is enabled by, positive relationships with the public. Pieper et al. (2022) emphasize that it is important to account for perceptions of residents to foster successful, sustainable solutions. There is also evidence in the literature that residents are willing to pay increased rates if they thought it resulted in better service (Faust et al. 2018), if they were informed, how they were informed, and how the information was framed (Teodoro 2022, Zamenian, Abraham, and Mannering 2020). Public perceptions are thus important for effective utility management and for making decisions that affect the community at large. In this study, we also analyze how specific information about benefits of the utility services and trust in public utilities impact the willingness to pay for higher rates for the residents of Michigan. Michigan is a perfect case study for our analysis since the state has a history with water crisis, has at least three legacy cities – Detroit, Flint, and Saginaw, and is facing higher water bills (Read et al. 2022). Moreover, unlike other parts of the US, water shortage is not the driving force for rising water bills in this Great Lakes state. In this analysis, we focus on water affordability across the US with a focus on shrinking cities and environmental justice. To discuss potential policy instruments, we use Michigan as a case study to further understand how trust and information can impact the willingness to pay for the cost of WSS. Specifically, the research objectives of this study are i) find evidence if the affordability concerns are higher for households headed by African Americans, ii) find evidence if the affordability concerns are higher for regions with legacy cities, and iii) understand if information and trust can potentially impact the willingness to pay for WSS. We use data from American Community Survey at public use microdata (PUMA) level through IPUMS1 to address the first two objectives. To study the third objective, we would conduct a survey of Michigan residents where residents from legacy cities are oversampled (We expect the survey to be completed by the time of this conference). Our study is different from the two other national affordability studies (Cardoso and Wichman 2020, Mack and Wrase 2017) in at least four ways. First, both of these studies use water rates from utilities. In this study, we use annual water cost reported by respondents. Second, we focus on understanding affordability in legacy cities. Third, we focus on answering our research questions for a specific demographic group (households headed by African Americans). Finally, we also provide results from a stated preference survey. The results from our study indicate that WSS costs are higher in PUMAs that have legacy cities, and the WSS cost in legacy cities is increasing. We further find that the households which are headed by African Americans have a higher reported water cost compared to the households headed by Whites, but the gap between the two is bridging over time. Moreover, the proportion of people who pay more than 4.5% of the median income of their region of residence are considerably higher in areas with high proportion of African Americans. After obtaining the results from the survey, we will extend this analysis to further discuss policy scenarios. The results from our study can be used to design sustainable water governance.
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Authors: Sarkar, Sampriti; Lupi, Frank
Conference Name: 2023 Agricultural & Applied Economics Association Annual Meeting
Publisher Location: Washington DC
Data Collections: IPUMS USA
Topics: Natural Resource Management
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