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Cost Recoverable Tariffs to Increase Access to Basic Services among Poor Households

Cost Recoverable Tariffs to Increase Access to Basic Services among Poor Households
  • Asian Development Bank (ADB). March 2013
  • This paper presents a methodological approach to identifying tariff structures that ensure cost recovery for the provider while increasing take-up of basic services among the poor. It entails modelling the demand function for the entire market of potential users of the service using survival curve estimation techniques and knowing the costs faced by the provider. This allows for the identification of differential pricing schemes where less disadvantaged groups are charged higher prices in order to effectively cross-subsidize the lower prices charged to the poor. The low additional cost to implementing tariff structures with differential pricing therefore makes it a potentially powerful tool for increasing take-up of important services among the poor enabling providers of basic services to aid in more sustainable development while still allowing the provision of the service to be viable over the long term. However, the paper shows that altering tariff structures may not work for all types of services where the differences in willingness to pay (WTP) are less determined by level of income. To provide a concrete example, the approach is applied to a contingent valuation survey that captured household and businesses WTP for access to improved water and new sanitation services provided by the Metropolitan Cebu Water District (MCWD) in the Philippines.
  • Geographical coverage: Asia, Global, Philippines, Metro Cebu
  • Main themes: Cost recovery, Poverty, Sanitation, Tariffs, Water services
  • Main target audience: Policy makers, Water operators
  • Main purpose: Technical
  • Type of resource: Methodology, Survey results
  • Download file (622 KB)
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Published in 2015