Crane - Water Market, Result From Jakarta

7/29/2019 Crane - Water Market, Result From Jakarta

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Pergamon WoddDevrlopment, Vol. 22, No. 1, pp. 71-83,1994Copyright 0 1994Pergamon Press LtdPrinted in Great Britain. All rights reserved0305-7501094 $6.00 + 0.00

Water Markets, Market Reform and the Urban Poor:Results from Jakarta, Indonesia

RANDALL CRANE*Uni versit y of Cali fornia, Ir vi ne

Summary. Roughly 20% of the eight million persons ia Jakarta receive water from municipal watercounectiens to their homes. Remaining supplies are essentially private and include street vendors, staud-pipes, and wells - the last of these an inexpensive but inueasingly contaminated source in many areas.An expansion of the netwcrk of in-house connections is in progress, but will take several decades tocomplete. In the interim, various strategies have been advanced to deal with persistent problems ofaccess to good water by the poor. This study examines the impacts of one such plan put to action, theApril 1990 deregulation measure permitting private homes with water connections to resell municipalwater. We present preliminary evidence that the primary social benefits of deregulation are the moneysavings and increased consumption by former vendor and standpipe customers. In most respects theaggregate effect is equivalent to a costless expansion in the standpipe system, with the difference on thesupply side that significant transfers from vendors and standpipe operators to household resellers may

1. INTRODUCTIONLimited access by the poor to clean water is amongthe most basic issues faced by authorities in thecities of the developing world. This and related con-cerns explain a good part of the billions of dollarsplanned for urban water infrastructure investmentover the next few years. The funds are mainlyintended to improve water treatment capabilities andexpand the population served by in-house connec-tions, but administrative and regulatory reforms arealso increasingly advocated as either cost-savingstrategies or equity-promoting measures, or both.*The value of these efforts has been difficult to esti-mate, however, owing to the limited availability ofdata on actual water consumption patterns, especial-ly in squatter settlements. Information regarding thedemand for water by the urban poor, including theamount they pay, where they find it, and how theywould react to a change in either prices or supplystructures, remains relatively scarce. As a conse-quence, the behavioral response to any given policyintervention has only infrequently been incorporatedinto infrastructure investment and administrativereform plans.*This paper addresses the gap by analyzing theeffect of a competition-enhancing market reform inJakarta, Indonesia. Most of the residents of Jakartado not have direct access to piped water and increas-ingly find traditional low-cost sources, such as riversand wells, contaminated or depleted. In some partsof the metropolitan area, people obtain most of theirwater from alternative sources, including street

pedlars who deliver water door-to-door and neigh-borhood standpipes. These supplies are somewhatless healthy and dramatically more expensive thanwater distributed through house connections. Insome locations, inadequate access to reliable andlow-cost sources of clean water has led consumptionto fall to health-threatening levels. An aggressivestandpipe investment program has reduced the dis-tances between neighborhood taps over the past fewyears, thus lowering water transport costs and pro-moting competition among tap operators. As anothercomponent of the effort to increase the number ofsuppliers and thereby lower water costs to the urbanpoor, the municipal water enterprise also permittedall households with a metered connection to resellwater starting in April 1990.This study provides preliminary evidence on themarket impacts of the deregulation measure after its

*I am grateful to Dr. Jun Hang, formerly of The WorldBank and now of the International Finance Corporation,and to several senior staff of the Jakarta municipal waterenterprise, Perusahaan Air Minum Jaya, for comments,access to data and other essential help. Gunnar Eskelandand Emmanuel J imenez provided valuable advice on thedesign of the questionnaire. I also thank Marlon Boarnet,Amrita Daniere, Eric Heikkila, and especially three anony-mous referees for many suggested improvements to earlierversions. The data for this study were obtained as part of aproject completed for The World Bank, but the viewsexpressed are mine alone and should not be attributed toThe World Bank, its management, or any of its membercountries. Final revision accepted: August 20,1993.

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72 WORLD DEVRLOPMENTfirst year. There are two objectives. The first is togenerate new information regarding the linkagesbetween water markets, market reform, and urbanpoverty. While the results support the conventionalwisdom that market liberalization can only help con-sumers, as well as increase aggregate efficiency,they also underscore the pivotal role of private watermarkets in the larger urban service distribution sys-tem. Water is better described as a private marketcommodity than a public service for millions of peo-ple in Jakarta, and efforts to improve local circum-stances must account for local market conditions tobe most effective.The second aim of the study is to calculate theconsumption value of deregulation, as in a benefit-cost assessment. Within the limits of the samplingtechnique, the study considers the value of two cate-gories of consumer benefits, which are labeleddirect and indirect. Direct benefits are defined asthose restricted to households choosing to buy fromthe new water source, and are reflected in the timeand money saved over alternative supplies and thevalue of increased consumption. The so-called indi-rect benefits equal the money savings by currentvendor and standpipe customers owing to pricereductions induced by increased competition. Thelatter category of benefits do not accrue to the con-sumers of the deregulated water source, althoughthey are a direct consequence of the new policy. Inaddition to these, the change in the welfare of sellersis a third, unmeasured, category of potential benefits.While sizable transfers from vendors and standpipeoperators to household resellers might well occur,the primary social benefit of deregulation appears tobe the money savings and increased consumption byformer vendor and standpipe customers. Public sec-tor resource costs are negligible, so the effect onconsumers is similar to that of a zero-cost expansionin the standpipe system.The next section provides context by reviewingthe highlights of the literature on urban water mar-kets, and the structure of these markets in Jakarta.The results of a household expenditure survey arepresented, including a description of water consump-tion patterns in the sample. The paper then examinesthe benefits of deregulation, as an element of futurewater sector reform strategies. Finally, the conclud-ing section offers some further thoughts on waterpolicy toward the poor in Jakarta.

2. URBAN WATER MARKETSA number of studies have documented vending

and standpipe practices in developing countries.Many have also analyzed the respective roles of pub-lic policy and private markets in the overall waterdistribution system. Most of this work has concen-

trated on strategies for improving the adequacy ofwater supply in rural areas, where the greater num-ber of poor live and where the share of the popula-tion with reasonable access to good water is typicallymuch lower than in cities.3 This focus, reflected inthe rapid increases in rural infrastructure investmentthroughout the past three decades, was also drivenby the argument that services to rural residents corddbe brought to acceptable levels at a lower per capitacost than in urban areas.Somewhat less space has been devoted to thestudy of water delivery systems servicing the urbanpoor in recent years. While individual cities havebeen examined in some detail for broad-based casestudies of poverty- and development-related issues,systematic assessments of how urban water policiesaffect vending and other water sources for the poorare rare. Accelerated urban population growth overthe last 20 years, coupled with diminished access tourban services in many instances, is sparkingrenewed interest in urban water delivery issues, how-ever. A benchmark for this literature is the compara-tive survey of vending practices in Asia, Africa andSouth America by Zaroff and Okun (1984). Therecurring themes in their data were the high relativeuser cost of vended water, on both a per unit andmonthly basis, and its uneven quality due to poorhandling and source pollution. They nonethelessconclude that vending is the most appropriate meansof delivering water in many instances, though mostvending systems could be improved through publicsector intervention. The latter would include equip-ment upgrades, using house connections as vendorsuppliers, and route and price regulation to increasewater quality and lower its price. In a simulatedapplication to Surabaya, Indonesia, these policiesreduced the consumer price of vended water fromabout $3.90 to $1.04 per cubic meters

Based on evidence from several locations,Whittington, el al. (1989) argue that vending is oftensufficiently competitive to keep vendor profits belowrent-earning levels. In Whittington. Lauria and Mu(1991). however, an analysis of the private watersupply for the city of Onitsha, Nigeria, illustrateshow sensitive this result is to market conditions.Only 8,000 households in Onitsha. a city of 700,000,have formal piped connections. The remainderobtain most water horn a system of tanker trucks andtruck-supplied vendors. Trucks buy water at about$0.20 per cubic meter, which they in turn sell at$0.95 to $2.12 per cubic meter, at a markup ofroughly 50&1000%. Small vendors resell this waterat $2.7@-$7.90 per cubic meter, a further mark-up ofabout 300% over their cost. The significant laborcosts of the latter group keep excess profits to a min-imum. In the case of tanker trucks, however, sub-stantial economic rents appear to be generated. Theauthors were unable to provide a definitive explana-


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WATER MARKETS AND MARKE T REFORM 13

tion the existence continued monopolyings by owners, although suspect thattruck owners enforce entry

tions or the prospect a new Bank-financed of the water systemlowered profit and thus

In an study of Haiti,Fass presented the of a of2,600 and vendors in 1975.water enterprise estimated its popu-lation 400,000 people, half reached in-home and half 40 standpipes butthe determined the to be640,000 people, nearly 60% than thought.the populations by connections

standpipes were lower thanApproximately 435,000 used other,rect, sources their water none ofwere accounted in official sector plans.two most sources were obtainedat cost from with in-housetions, used 15% of population, andwater, purchased nearly 50%. water wasin three by 25 at $7.50 $15.00per meter, by households with connec-tions at $2.50 to as high as $50.00 per cubic meter inthe dry season, and by 14,000 traditional water sell-ers who bought their water from the second groupand resold it at $1.50-.$2.75 per cubic meter. As theauthor remarks, it thus became clear that water wasmuch less a public service than a large private indus-try, generating several million dollars in revenuesper year. The city water board earned less than one-fifth the amount people spent on vended water.Notable consequences include (a) the transfer ofwealth from poor consumers to the households sell-ing water from their homes, (b) the meager earningsof water carriers compared to sellers with piped con-nections, and (c) the wildly uneven level of access togood water across income groups and neighbor-hoods.

Fass observed that these patterns were not uniqueto urban Haiti, and that indeed the situation inJakarta, Indonesia, in the mid 1970s was similar inseveral respects. As shown in Berry and Sierra(1978) and Berry (1982), a system of vendors andprivate standpipes supplied as much as 10% of thecity at $1.70~$2.10 per cubic meter in 1977.Vendors bought their supplies from private waterconnections at about $0.09 per cubic meter. Thesewater connections differ somewhat from those inurban Haiti by their official status and restrictions oncompetition. Classified as standpipes. or hydrants,their location and operator were selected by thewater authority. In addition, the prices charged weresubject to controls. These controls appear to havebeen largely ineffective, but entry into the marketwas tightly regulated. Private households were pm-

hibited from selling to their neighbors, for example.Berry and Sierra (1978) evaluated the extent ofmonopoly power by standpipe operators, and itsimplication for consumer pricing. They also calculat-ed the distances between standpipes that wouldretard excess profits while ensuring reasonableaccess by the poor. The main recommendation wasan aggressive standpipe investment system to reduceexisting distances accordingly.

Two lessons of critical importance to our studyemerge from this brief review. In many cities whereaccess to good water is restricted, including Jakarta,the private sector plays a central role by resellingwater obtained from private taps. In particular, indi-rect access to public sector water may be moreimportant than direct access, especially among theurban poor. The other lesson is that the consumerprice of water depends on market structure, i.e. onthe degree of competition among resellers. This isinfluenced by both the regulatory environment andprivate market characteristics. The next sectionupdates water market data in Jakarta to 1991, follow-ing more than a decade of considerable investment inboth house connections and hydrant systems - and,in 1990, the legalization of household resales.

3. WATER MARKETS IN JAKARTA TODAYIn many respects, access by the poor to good

water in Jakarta has both improved and deterioratedover the past 15 years. As the commercial andadministrative hub of the fourth most populouscountry in the world, a disproportionate share of thenations population growth over the past threedecades has fallen on metropolitan Jakarta. By 1990,20% of the urban population of Indonesia, or overeight million people, lived and worked in the city.The surrounding fringe areas contained an additional8.4 million. The rapid urban growth and associatedindustrialization in the metropolitan Jakarta area areplacing increasing stress on the natural resources ofthe region, with domestic and industrial wastes caus-ing severe degradation of ground, surface and coastalwaters. Fully 40% of the population still depend ongroundwater, but the quality of this source is alreadypoor in many areas and threatened in others.Incidence of infant mortality and of gastroenteric.pulmonary and viral diseases caused, in part, by pol-luted and congested conditions is high, especiallyamong the poor and those living in northern, flood-prone areas of the city. Moreover, the ground watertable is saline from the coast to as far as five kilome-ters inland, leaving well water all but useless at somesites.The other main water source is the municipalwater authority (PAM Jaya). This is distributed byseveral means, the most direct, convenient and least


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14 WORLD DEZVELOPMFNTexpensive of which are in-house connections.Thewater enterprise listed 225,000 household water con-nections in June 1991, or about 20% of the house-holds in the service area, with expansion plans call-ing for an additional 25,000 hi each of the next fewyears. In the southern, central and eastern parts ofthe city, those who lack official connections continueto rely on well water for most purposes. Residents ofthe northern and western areas, where groundwatersupplies are of especially poor quality, generally buytheir drinking and bathing water from eitherhydrants, a kind of private standpipe. or street ven-dors. The latter in turn obtain their supplies fromhydrants, which are connected by pipe to the munici-pal distribution system.

Although somewhat public in origin, private indi-viduals operate most hydrants as for-profit enter-prises. The two main types are (a) Hidran (Imum.the franchise for which was purchased outright by anindividual, and (b) Hidran Contoh, which are osten-sibly free to the community and operated by an indi-vidual awarded that privilege with the support ofneighborhood leaders. A third hydrant type is thewater terminal, or Terminal Air. These are freestand-ing water tanks supplied by water trucks in remoteareas beyond the reach of the water mains. To pur-chase hydrant water, a household must transportbuckets of water from the tap back to their home byhand, or by cart rented from the hydrant operator. Ina few cases, Hidran Contoh use long hoses to deliverwater to each house so that no water need be carried.The traditional Jakarta hydrant is the Hi&an Umum.with 1,241 in use in May 1991. The number ofHidran Contoh has risen dramatically in the pastfour years due to au aggressive investment programof the national planning ministry (BAPPENAS), andthere were 633 by May 1991. While the HidranContoh are meant to be more community orientedwith respect to both location and operation, whateverdistinctions exist between the two hydrant types tendto be immaterial to consumers in most instances.Service quality differences from one hydrant toanother appear to depend far more on the pressure inthe distribution system at that location, and the sizeof the hydrant reservoir, than how the hydrant wasfinanced or how the franchise was awarded. In par-ticular, market forces largely determine sellingprices rather than official price guidelines.

A recent estimate by PAM Jaya of the number ofvendors servicing Jakarta is around 8,000. An exten-sive housing survey conducted in 1988 indicated that32% of the municipal population bought vendedwater (Struyk. Hoffman and Katsura, 1990).Vendors transport water in plastic or tin jerrycans.varying in size from 18 to 100 liters each, by meansof single axle handcarts carrying four to 18 cans. Tosell water, the vendor hand-carries jerrycans to thehouse from the street or alley and deposits the water

in the households barrel or reservoir. Customers buywater by the cart or by the piRul (two cans). Vendorsin Jakarta commonly purchase their water fromhydrants, although the vendors are often employeesof the hydrant operators and work for a salary or at apiece-rate. In other cases, the vendor may rent thecart from a hydrant owner. Vendors tend to have reg-ular routes, and other studies of Jakarta have report-ed that vendors stray from their normal route onlywhen requested to do so by a consumer.Lingering concerns remain over the marketpower of both hydrant operators and vendors. In1990 and 1991, the official consumer price of waterdelivered by an in-house piped connection was 350Indonesian Rupiah (Rp) for each of the first 15 cubicmeters per month (about $0.18 in mid-1991). Anescalating block tariff applies to larger quantities,peaking at Rp 900 per cubic meter for amountsabove 50 cubic meters per month.9 In addition,installation of the hook-up requires a fee of Rp81,000. Each Hidran Umum and Hidran Contohoperator paid Rp 150 per cubic meter for water fromPAM Jaya, at least in those cases where meters werefunctioning correctly. The official selling price,prominently displayed in every hydrant facility, wasRp 500 per cubic meter in 1991. Actual sellingprices tend to be from Rp 1,000 to Rp 4,000 percubic meter, including the rental price of the cart.The end-user price of vended water varies substan-tially from one area to another, but can be as high asRp 7,000 per cubic meter, some 20 times the pricefor connected omes. These vast differentials haveled to both equity and health concerns by water plan-ners. While more hydrants are added each month,some observers have expressed the concern thathydrant competition is kept to a minimum by spac-ing hydrants sufficiently far apart. The vendor sys-tem is entirely private in nature, and unregulated.Apart from price controls, already in place to someextent for hydrants, the clearest means for improvingconsumer welfare is to introduce more competition.

Lovei and Whittington (1993) and Shugart (1991)have reexamined these arguments, based on new evi-dence for Jakarta.lO In principle, the ability ofhydrants and vendors to earn excessive profits is lim-ited only by the availability of close substitutes forthe services they offer, and in many areas these arefew indeed. Shugart (1991) provides an especiallyclear picture of vending and hydrant practices in thenorthern and western parts of the city, where thesemarkets are most active. He discusses how limitedcompetition among vendors and the spatial pattern ofhydrants interact, and suggests that the degree ofcompetition among vendors varies by neighborhood- depending on. among other things, whether com-peting vendors are members of the same ethnicgroup or have migrated from the same village.rlHydrants are another story, with the extent of price


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competition depending almost entirely on the dis-tances involved. Lovei and Whittington (1993)emphasize the potential for sizable rent earnings byboth vendors and hydrant operators, and concludethat existing arrangements result in too few watertaps, and too many resources hauling water by cartThey argue that deregulation of water sales coupledwith the easing of supply constraints could substan-tially lower both hauling costs and water prices, andthus reduce the ability of utility staff and neighbor-hood officials to capture rents.

The municipal water authority implemented apolicy with precisely this intent in mid-1990: Thelegalization of the resale of water from householdconnections. The remainder of the paper presentsdata on its effect and the corresponding implicationsfor water sector policy in the metropolitan area.

4. A WATER EXPENDITURE SURVEY FORNORTH JAKARTA

To encourage a stable and competitive water supply for low-income families, the municipal waterenterprise announced in April 1990 that all house-holds with a metered connection would be permittedto sell water to their neighbors and to vendorsi Aprohibition on this practice was strictly enforced upto that time. To assess the impacts of supply deregu-lation, a household expenditure survey was adminis-tered in Jakarta in mid-1991. A complementary pur-pose was to collect generic information on waterconsumption by low income households, includingthe sources used, the quantities bought and pricespaid. Due to time and funding constraints, the studyconfined itself to the area of Jakarta with the worstground water conditions: North Jakarta, a jurisdic-tion covering roughly 155 square kilometers, or 23%of the citys total land area, and home to just overone million people in 1989. Water availability is aparticularly serious problem in this area and bothvending and public hydrants are relatively wide-spread. It is also the area where the largest concen-tration of houses reselling water is located.

Extensive interviews were conducted in July andAugust 1991 with 291 residents. The sampling pro-cedure resembled a modified cluster approach,although severe constraints on time and resourcesmade proper sampling techniques somewhat imprac-tical. Address listings were unavailable for theneighborhoods of interest, for example. Low-incomeareas were chosen through site visits and identifiedon street maps, and we interviewed clusters of atleast 30 households in each of the major subjurisdic-tions (kelurahan) of North Jakarta. Fewer than twoweeks were available for the sample selection anddata collection phases of the study, and as with otherrapid appraisal type studies in developing coun-

tries, every attempt was made to collect data as representative and thus useful as time and fundsallowed. Although our results are consistent withother household data collected from North Jakarta inrecent years, caution should be exercised when gen-eralizing the results beyond the sample.The median monthly expenses of the samplehouseholds are just over Rp 250,000.r3 While thesample households are quite poor and live in areas

lacking most public services, 48% own their homesand half have lived in their current home at least fiveyears. The 291 sample households averaged 5.5people per household, and represent a total of 1,341people altogether. Table 1 summarizes water con-sumption behavior for the sample. These descriptivedata are revealing of both fundamental trends as wellas the impacts of the market reform. Over 73% ofthe sample households report buying water fromwater vendors, 27.5% from public hydrants, and10.0% from household resellers; i.e. neighbors within-house connections.*4 Some 13.4% of the sampleobtained water from the PAM Jaya piped system.About 12% of these reported reselling water to theirneighbors. The number of families buying somewater from neighbors is approximately one.-third thatbuying water from hydrants, and one-sixth the num-ber buying water from vendors.

Not surprisingly, the average volume of waterconsumed is greatest for those households withwater connections. Sample households with connec-tions report buying nearly 62.2 liters per person eachday. The second highest volume is for resold water,at 26.7 liters per person each day. The averageamount purchased from hydrants is virtually thesame. Vendor customers purchase much less thanthose of other suppliers, an average of only 14.6liters per day per person. For North Jakarta overallthis behavior is consistent with the reported cost ofwater, which is highest for vendor-supplied water, atRp 5.040 per cubic meter. This is over I4 rimes theaverage cost of PAM Jaya water through a pipedwater connection. A larger share of vended water isreserved for drinking and cooking than for the othersources. however. Water from hydrants is the nextmost expensive after vended water, at about seventimes the piped water cost. Water resold by house-holds is only slightly less than hydrant water, at Rp2.090 per cubic meter.Sample households report the largest expenditureshare for vended water (7.5%). slightly less forhydrant water (4.8%), and less still for resold water(3.2%). Families rarely depend on resold water astheir sole source, however, so this last term underes-timates the average water cost for those households.The smallest budget share is for piped water (1.8%).Because piped water is considerably more inexpen-sive on a per unit basis, low-income households withconnections choose to consume three to four times


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Table 1. Water cauumption profie (Samplemeans,xceptwhen? &-d)Vendor Hydrant

customersHouseholdresalescustomers

connectedhOU&OldS

Number of householdsPercentage of sample*Cubic meters per monthLiters per day per personPrice per cubic meterMinutes per week obtaining waterMeters to nearest hydrantMeters to house connectionMeters to household resellerMonthly household water cost

21413.5%2.414.6

$267lb13191113

8.525.9Rp 2,430($1.26)8360

429-IRp 13,590 Rp 9,468($7.06) ($4.92)Monthly water cost per person Rp ,2io Rp 1,663Share of household budget for water 7.5% 4.8%Median monthly expenditures Rp 232,500 Rp 295,ooo

2910.0%5.726.7?ZOY8710420Rpy521($4.b5)Rp 1,6293.2%

Rp 260,m

3813.4%13.262.2

%OY;;---Rp4,854($2.52)& 6501.8%

Rp335,OOOYThe sample shares in the first four columns add up to more than 100% as 17% of the surveyed households purchasedfrom moTe than one source.Source: The source for the data in all the tables of this paper is the household survey administered by the author anddescribed in the text.the volume of water consumed by vendor andhydrant customers. Median monthly expenses werehighest for co~ected households, at about $174. andnext highest for those buying hydrant water.Households purchasing neighbor supplied waterwere next lowest and, significantly, the lowest medi-an monthly expenses were those of households buy-ing vended water, at about $135.To measure the sensitivity of consumption tohousehold and market variables, particularly pricesand water transport requirements, a simple behav-ioral model of water demand was estimated for thehouseholds buying water from vendors or fromhydrants. (See the Appendix.) Table Al in theAppendix shows that the demand for vended water issignificantly influenced in our sample by the Price ofwater, the time per purchase, and the capacity of thehome water reservoir, all with the expected signs.lsThe point estimate of the price elasticity of waterdemand is -0.48, which is consistent with the esti-mates reported in other studies of water demand indeveloping countries. I6 The interpretation of thismeasure is that a 1% increase in the price per cubicmeter will, on average, reduce the quantity boughtby 0.48%. Controlling for differences in income,family size, and other family and community charac-teristics, the demand for vended water is thus moder-ately responsive to price variation. Purchases willfall if prices rise, and will increase if prices fall, allthings considered. The expenditure elasticity ofdemand is estimated to be highly inelastic, at 0.03,but not significantly different from either zero orone. There may not be enough income variation in

the survey, controlling for all other factors, todemonstrate a separate role for household resources.It may also be that expenditures are a poor or biasedmeaSure of income, or not as complete a measure ofthe resources available to the household as would beuseful.

As shown in Table A2 in the Appendix, the priceelasticity for hydrant water is estimated to be -0.60,in roughly the same range as that for vended water.In this case, the time per purchase and the capacityof the storage tank are not significant. This is cer-tainly not what we would expect of the time variable,where the effort and time necessary to collecthydrant water is substantially above that necessaryfor vended water. Again, there may be a problem inthe way the variable was measured. It will be useful,for example, to account for who it is that usually col-lects the water. A childs time may have relativelylittle value, while an adults time has higher opportu-nity costs. The absence of an effect of reservoircapacity is less surprising, given the likelihood thatless water can be carried per trip than can be storedat the home.

5. THE VALUE OF DEREGULATIONThis paper considers two categories of consumerimpacts of the change in regulatory policy, which wecall direct and indirect for convenience. Direct

impacts refer to those realized by new householdwater customers, including both vendors and directpurchases by other households. Ibe last of these is


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measured by calculating the savings in water expens-es and time for customers buying resold water.Indirect impacts include the effects of increasedcompetition on prices charged by other suppliers,and are reflected in price reductions to customers ofboth hydrants and vendors. Without good longitudi-nal data, it is difficult to attribute changes iu end-user water prices to any one factor such as the intro-duction of new supply structures. Even where pricesrise or remain stable, new supplies and other compe-tition-enhancing reforms may well keep downwardpressure on prices. Gur survey, based on the memo-ries of the respondents, indicates steady prices overthe first year of the new policy. This is consistentwith the interviews with vendors and hydrant opera-tors by Shugart (1991). who attributes the flat pricesto expansions in the hydrant system. While con-sumers obtaining water exclusively from eitherhydrants or vendors have not benefited directly fromhousehold resales, the indirect benefits of entry bynew suppliers are thus tangible. Whether new sup-plies are in the form of private households with con-nections, community controlled hydrants, or someother fixed location source would not appear to mat-ter in this respect. The impact of this competition isdifficult to estimate given the available data, but pre-liminary field visits suggest it is relatively minimal.The potentially sizable transfers among watersuppliers are another matter, and represent a thirdcategory of impacts. To the extent householdresellers capture market share from both vendors andhydrants, they will gain and the last two will lose. Insome areas, household resellers have clearly cap-tured a share of the revenues formally going to ven-dors - who, on average, may be poorer that the newresellers. Diminished market share for vendors ismost likely unavoidable, in any case. These gainsand losses am difficult to calculate in our case, how-ever, as we have very few observations on waterresellers. The issue is probably whether consumptionbenefits outweigh whatever negative impacts thesetransfers may have, and this is largely answered bythe willingness of consumers to change suppliers.The discussion below thus emphasizes direct con-sumption benefits.Based on the sample data, there do appear to havebeen such benefits. In comparing sources from oneyear to the next, and for drinking and cooking versusbathing and cleaning. Table 2 shows that while ven-dors provide most of the respondent drinking andcooking water needs, the largest proportional growthhas been in rainwater and water resold by house-holds. The households represented in this sampleused vendors and piped water (from new connec-tions) more in mid-1991 than one year earlier, wellwater somewhat less, and hydrant and householdsupplied water about the same. One might haveexpected to see a larger gain from hydrant use, and

Table 2. Proporti on of sample using sach water sowce inJul y 1991, and the change in each proporti on over thepmolu yearUse fa driakiag Use fa bathing andsadcockiag cleaaingDry g &?a L$euml*

Vendor 61.0% 5.4% 47.3% 5.3%Hydrsat 26.4% 0 15.8% -1.9%Househdd $pe 11.0% 19.6% 9.6% 7.9%Househddrcade 1.7% 21.4% 2.7% 12.5%Neighborwell - - 0.7% 0Own well 4.8% 12.7% 32.3% -0.9%RiVClRlillW~


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Hydrant

q ended water n ydrant water q esold waterFigure 1.Percenrage f sample by sour ce and by aWmce of potential sources.

size of these benefits, in the equity of their diatribu-tion. and how they compare with any associated supplier costs. Again, however, the last two of these aredifficult to pin down with any real accuracy giventhe nature of our data. We therefore concentrate onthe first.As defined in this study, the direct benefits ofwater sales deregulation come in two forms: themoney and time savings from a change in suppliers,and the additional benefits of increased consump-tion. These must be positive overall, or the house-hold would not have changed suppliers. but it is use-ful to examine how the various components com-pare. If a household had been consuming 100 litersper day of vended water at Rp 5 per liter, for exam-ple, and switched to resold water at Rp 2 per liter,the most obvious savings is the difference in the costof 100 liters, or Rp 300 per day. That is the out-of-pocket savings. There may also be a time savings,reflecting the difference in the time and effort cost ofobtaining water. A switch from vended to resoldwater would probably involve increased time, so thiswould enter the benefit side negatively. If the house-hold had previously spent ten minutes per dayobtaining water, and now must spend 30 minutes perday at that task, the net cost of the change is themoney value of the additional 20 minutes. This inturn depends on which person in the householdobtains the water, and the opportunity value of theirtime in other activities. If that person values thattime at Rp 300 per hour, for example, the additionaltime required to obtain resold water effectively coststhe household Rp 100 per day.

There is also the additional direct benefit repre-

sented by any associated increase in water use, andby extension the health and other indirect benefits ofincreased consumption. It is likely that the householdwill choose to buy more than 100 liters per day nowthat a lower cost alternative is available. Say thehousehold increased its consumption to 120 liters,for example. While the family must pay Rp 2 x 20liters = Rp 40 per day for this water, it is also gener-ally true that the household would be willing to payeven more. Thii surplus* can be considered a mea-sure of how much better off the household is by pur-chasing more water than before, at a cost below whatit is worth to them.* The conventional approxima-tion of the household value of this surplus is just halfthe increased consumption times the change in price;i.e. (20 liters x Rp 3)/2 = Rp 30 in our example.Thus, a measure of the total direct benefits gained bythis hypothetical family per day is Rp 300 moneysavings, less Rp 100 time cost, plus Rp 30 con-sumers surplus, or Rp 230.

The fast step in this procedure is straightforwardand can be estimated from observed data; i.e. theaverage price paid by source, and the average quan-tity consumed. The second step is more problematic,as it requires an accurate accounting of the timedevoted to water collection and the value of thattime.rg The third step, the calculation of the con-sumers surplus gained by changing suppliers,involves estimating the expected change in wateruse. We do not have data on this change, but we canapproximate it by using the estimated elasticities ofdemand from the previous section to calculate howconsumption will increase with a change in sup-pliers. The price elasticity of demand is a measure of


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WATER MARKI XS AND MARKET REFORM 79

Table 3. Welfare gains by customers of household ru&rsvahe of price difference

Switched from Switched fromvended supplies hydraat suppliesPer cubic meter Rp 3,020 Rp440Per month perfamily Rp 8,070 Rp 2,470

the propensity to vary water coosumptioo as theprice of water varies. 10 the Appendix, we estimatethat hydrant customers have a price elasticity of-0.60, which implies that if prices fell by 18%. thequantity of water purchased would rise by 60% ofthat amount, or roughly 11%. Table 3 summarixesthese calculations for the hypothetical situation ofthe average household facing average prices.

When a household changes suppliers, the calcula-tion of consumption effects must also account for thechange in the time-cost of waiting for and transport-ing water. While the average price reduction ingoing from vended to resold water is 60%. fromTable 1, the household time devoted to bringingwater into the house will increase - the real savingsof switching from a vendor is therefore not so greatas it might appear from the financial accounting.This component of the cost of water depends both onthe time spent transporting resold water and thevalue of that time, which in turn depends on thealternative uses of the time of the person collectingthe water. As in the price savings, there are two wel-fare effects: the value of the time savings 00 the ini-tial quantity bought, and the value of increased coo-sumptioo attributable to the time difference.

These time savings gained by new customers ofhousehold resellers can also be illustrated, thoughwithout any statistical measure of accuracy. promTable 1, the average monthly difference in timespent buying water from resold water versus vendedwater is about 4.5 hours per month. The averagenumber of purchases per week was five. We can thencalculate an estimate of the increased time requiredper purchase when switching from vended to resoldsupplies of 15 minutes. This will r edu ce coosump-tioo, holding all other factors constant, about 30liters per month on average. The value of thatdecrease depends on the value of time in this use.The time savings of a switch from hydrant to resoldsupplies depends most directly on the relative prox-imity of the two supply sources. There may also be.differences in waiting times in the queue. Table A2provides no evidence. however, of a significant rela-tionship between the demand for hydrant water andthe time required to purchase and transport thatwater. This counter-intuitive result may be due to theform of the data, the specification of the regression

equation. or other features of the local water marketthe model does not capture.00 the surface, the effect of deregulation onprices paid and quantities consumed by low-incomefamilies thus appear both positive and significant.Many households have benefited from the availabili-ty of closer and in some cases less expensive water.Customers who have switched to resold water fromvended water now face a lower unit price and nodoubt increased their water consumption significant-ly as a result. Those who switched from hydrantwater have realized less of a price decrease, on aver-age, but in many instances likely gained some sav-ings in time and effort costs associated with watertransport The public costs of the new regulatory pol-icy appear miniial. The effect of the new policy isthus equivalent to an inexpensive expansion in thestandpipe system.

6. CONCLUDING REMARKS ANDCONSIDERATIONS

On balance, it is difficult to argue with a policystimulating competition for an essential commoditywhere, in addition, the poor are burdened by priceswell above those faced by others. In the case at hand,the costs of market deregulation are almost exclu-sively the rents lost by suppliers facing a diminishedmarket share. These may or may not be a social coo-cem. The direct benefits of the legalization measureare reflected in prices below the market prices ofother suppliers, in the additional consumption thelower prices permit, and in the reduced time neces-sary to transport resold water versus standpipe water.In our sample, consumer benefits are about 59% ofthe average household water bii for ex-vendor coo-sumers (less additional time costs), and about 26%of the average water bill for ex-hydrant consumers(plus any time savings). Vendors buying water fromhousehold resellers pay more than from their normalsuppliers (standpipes), but do so to avoid waitingtime in the queue and to reduce transport distance.The indirect benefits of deregulation, in the formof increased supply competition. are likely minimalin the short mo and are difficult to measure with ourdata in any case. The overall extent of reselling islimited, for example, by the comparatively high supply costs of household resellers due to rising blocktariffs, and the reality that water which must betransported by the customer is not a perfect substi-tute for water delivered into the house. The lattercharacteristic also limits the value of an expandedstandpipe system. Indeed, neither household resalesnor the hydrant program are long-term substitutes foran expanded piped water system. These policieshave eased supply problems for vendors and house-holds alike in the interim but, especially considering


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80 WORLD DEVELOPMENTthe value of time and effort, the consumer cost ofwater is substantially higher in either instance.

Until connections become more widespread, afundamental characteristic of the water sector in theareas of Jakarta with poor groundwater is that it isessentially private. Thus, public policies attemptingto work within the framework of supply and demandat least avoid many of the unintended consequencesof those which do not. Other obstacles remain, how-ever. One of the more serious problems limiting theeffectiveness of the deregulation is the widespreadignorance of the legality of resales. Among thosefamilies who were aware such sales are legal, over28% bought some resold water. The purchase ratewas below 7% for households who did not know,which may be partly explained by households whowere told it was legal but were not sure. We wouldexpect increased demand for resold water if villageand other community leaders become more involvedin promoting the legality and availability of salesfrom household connections. These efforts mighttake the form of neighborhood meetings, neighbor-hood directories, and even community facilities toencourage the practice of sales from house connec-tions. This form of community participation willensure that families have community support for thepractice of buying from their neighbors, and that theactivity is clearly legal. It will also improve the qual-ity of information regarding sources of water, andthereby of prices paid.

Surprisingly perhaps, not all households whohave the opportunity to connect do so, even when itwould save them money over time - as it would inmost of the examples given here. The obstacle ispartly the connection fee of Rp 81,000 (S42), whichis a large lump sum payment for highly marginalixedfamilies. Credit schemes exist that, on paper at least,should all but eliminate this burden. PAM Jayaallows the fee to be paid directly to them in threeinstallments. The municipal bank offers a 12-monthfinancing plan, requiring monthly payments of Rp7,000 or so. From Table 1, the average vendor cus-tomer could increase his familys water consumption

five-fold after obtaining a connection, and themonthly cost of the water and the connection install-ment would still sum to less than the average vendorbill. Hydrant customers face similar savings. Thecredit plans are little used, however. These calcula-tions also ignore both the Unofficial fees one mustpay in many instances to facilitate the connectionprocess and the necessary improvements to the inte-rior of the structure, for which no formal installmentplans are available. In addition, several householdsmentioned the difficulties associated with budgetingwater expenses on a monthly rather than a dailybasis. The policy implication is that fmancing a lumpsum water investment is a complicated matter for thepoor, and simply having credit available is inade-quate to the task. Alternative strategies should beexplored, including folding the connection fee intothe water bill somehow and considering more flexi-ble-meaning more frequent-payment plans. Thefinancial constraints keeping households fromobtaining piped connections that lower their costs,and increasing their water use. should be studiedfurther.

A fmal caveat: While the importance of account-ing for private market activity in water sector plan-ning is an unmistakable implication of this work,care should be taken when generalizing beyond thesample. The low-income areas of this city and othersdiffer markedly in their physical and economic cir-cumstances, including the pressure available in thepiped water system, the land tenure of residents, thelevel of organization among vendors, the size ofwater cans vendors use, the way hydrants distributewater, the extent of in-house water connections, andthe size of the alleys and pathways between homes.The basic lessons of market reform no doubt applyequally well to other cities in other countries, but themagnitude, character, and distribution of change willdepend on local market structure. Future researchshould review and assess the particular circum-stances of each area before advocating one kind ofreform over another.

NOTES1. See, e.g., Munashinghe (1990), Okun and Lauria (1990). Wood and Palmer-Jones (1990), Okun (1991),

(1991) and the overviews by The World Bank (1992) aad Whittiagtoa, Lauria aad Mu (1991), and The World BankThe World Bank Water Demand Research Team (1993). Water Demsnd Research Team (1993).

2. The value of such infamation is d&ussed in some 4. Recent examples include Linn (1983) and Rasardadetail by Whittington and Choe (1992). which contains a and Parnell (1993) on large cities, Schteingart (1989) onsystematic review of the literature on the vahration of non- Latin Amesice, and Marcussen (1990) and Jelhnek (1991)health benefits of water sector improvements. on Jakarta. Exceptions include Trava Manxanilla, R.

Calleros and B. Rodriguez (1991) for border cities in3. E.g., Saunders and Warford (1976), Briscoe and Mexico, Fass (1988) for Haiti, as discussed below, anddeFerranti (1988), Whittington, e? al. (1989). Briscoe, et al. Hardoy, Cairncross and Satterthwaite (1990).


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WATER MARKETS AND MARKBTREFGRM 81

5. All dollar figures have been expressed in constant1991 US$ terms, using the Consumer Price Index.6. Buro Pusat Statistik (1990).7. Yayasan Dian Desa (1990) and Shugart (1991).8. The exchange rate in July 1991 was approximately1,925 Rupiah to each US dollar. The rate structure was

revised upward in late 1991.9. The intent of an increasing block tariff is to bothencourage conservation and provide a cross-subsidy to low-consumption users. It also severely restricts the role privatehomes can play as indirect suppliers of water to the pocr,however, as the marginal supply price of water will risesignificantly above that of other supplies with the amcuntsold. In this case, purchasers of household supplied waterwould cross-subsidize connected households that do notsell water, which in most situations are wealthier.Whittington (1992) discusses these issues in detail.

10. A case study of the Nortb Jakarta hydrant development program in late 1989 by Yayasan Dian Desa (1990)also addressed many of these issues.11. The average monthly net revenue of North Jakartavendors in the survey results of Crane (1992) was Rp230,000 in 1991, less any cart rental costs. lhis representsan average hourly wage of Rp 900 for the sample, whichLovei and Whittington (1993) indicate is two to three timesthe relevant average wage.12. PAM J aya Director General Announcement030/INSTRIPAM/IV/l990, April 21990.13. The questionnaire requested expenditure data on indi-vidual categories of goods (e.g., food, electricity, housing,)and the monthly total, which allowed for cross-checking

and some curection. l&se data are considered somewhatmore reliable than the coIleded income data for that reason,which in any event were not reported for nearly one-thirdof the sample.14. Hydrants, vendors and co~ected households are allpotential resellers of water. For clarity, we will tend torefer to connected households that resell as householdresellers.15. The decisioltmaking unit is the household, and thedemand equations are thus estimated at the household levelrather than on a per-person basis. Household sixe is includ-ed as a control variable. Still, the composition of the familyclearly matters, with respect to both the demands for waterby people of different ages and the availability of person atdifferent ages to collect water. Alternative specifications ofthe family configuration did not significantly affect theprice and time coefficients, however.16. See the studies cited by Briscoe, et al. (1990), Bahland Linn (1992), and Whittington and Choe (1992).17. The survey took place during the dry season.Respondents were also asked about their consumption byscurce during the rainy season, during which time the pro-portion of households using rain water for drinking andcooking was about 10 times higher and the proportionusing rain water for bathing wss about twice as high, onaverage, as during the dry season. Use of the other scurcesdid not vary much from one season to another.18. Pindyck and Rubinfeld (1992) contains a basic dis-cussion of this apl~oach to the measurement of consumerwelfare.19. Whittington. Mu and Roche (1990) is a recent exam-ple of an effort to calculate the value of time devoted towater collection.

REFERENCES

Altaf, Mir Anjum, Haroon J amal, J in Long Liu, V. Kerry EenkEccnomic Review4 (1990), pp. 115-134.Smith and Dale Whittington, Prices and connection deci- Briscoe, J ohn P., and Daniel deFerranti, Wateror Rumlsions for public water systems in developing countries: A conrnrwliti~: Helping People H elp Themselvescase study of the Punjab, Pakistan, unpublished (J une (Washington, DC: The World Bank, 1988).1990). Buro Pusat Statist& (Indonesian Central Bureau of Statistics)Bahl, Roy W. and J ohannes F. Linn, Urban Public Fi nance Jakarta D&m Angka J akarta, Indonesia: 1990).inDeveloping Countr ies (New York : Gxford University Crane, Randall, lhe impact of water supply deregulation inPress fcr The World Bank, 1992). J akarta, Indonesia: Results from household and water ven-Berry, Brian J .L. Clean water fa all: Equity-based urban dor surveys in North Jakarta, Final Report, Infrastructurewater supply alternatives for Indonesias cities, Urbmr Division (Washington, DC The World Bank, April 1992).Geography, Vol. 3 (1982), pp. 281-299. Fass, Simon M., Politkal Economy in Haiti: the Dr ama ofBerry, Brian J. L., and Katherine Sierra, Public works Survival (New Brunswick, NJ : Transaction Books, 1988).investment strategy in a developing country: Urban water Gertler, Paul, and J acques van der Gaag, Measuring thesupply in Indonesia, Urban Planning, Policy Analysis willingness to pay for social savices in developing coun-and Administration Reseerch Report R78-3, Department tries, Living Standards Measurement Study Workingof City and Regional Planning(Cambridge, MA: Harvard Paper No. 45 (Washington, DC: The World Bank, 1988).University, 1978). Hardoy, J orge E., Sandy Cairncross and DavidBriscoe, J ., P. Furtado de Castro, C. Griffin, J . North and 0. Sattherthwaite (Eds.), lke Poor Die Young: Housing andOlsen, Toward equitable and mstab&le rural water sup Health in i%ird World Countries (London: Earthscanplies: A contingent valuation study in Brazil. TheWorld Ress, 1990).


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82 WORLD DE7 ELOFWENT

Jellinek, Lea, The Wheel of Fortune: The H istory #a PoorCommunity in Jaharka (Honolulu: University of HawaiiPress, 1991).

Kasarda, John D., and Allan M. Pamell (Eds.), Third WorldCiti es: Problems, Poli cies and Prospects (Newbury Park,CA: Sage Publications, 1993).

L.inn, Johannes, Citi es in the Developing Wor ld (New Yak:Oxford University Press, 1983).Lovei, Lasxlo, and Dale Whittington, Rent-extractingbehavia by multiple agents in the provision of municipalwater supply: A-study of Jakarta, Indonesia, W&rResources Research 29 (July 1993). w. 1965-1974.

Marcussen, Lars, i7rird WorldHousing~~ Social and QnztialDevelopment: The Case of Jakar ta (Aldershot, UK:Avcbury, 1990).

Mu, Kinming, Dale Whittington and John Briscoe,Modeling village water demand behavior: A discretechoice approach, Water Resources Rcpurr ch 26 (1990),pp. 521-529.

Munashinghe, Mohan, Water supply policies and issues indeveloping countries, Natural Resources Forum(February 1990), pp. 3348.

Okun, Daniel A., A water and sanitation strategy for thedeveloping world, Envi ronment 33, No. 8, (October1991), pp. 16-43.

Okun, Daniel A., and Donald T. Lauris, Capacity buildingfor water resources management: An international initia-tive for the 199oS, Division for Global and InterregionalProgrammes (New York: United Nations DevelopmentprOgramme, August 1991).

Perusahaan Air Minum Jaya, Various unpublished data,Jakarta, Indonesia (1991).

Pindyck, Robert, and Daniel Rubinfeld, Microeconomics,Second E& ion (New York: Macmillan, 1992).

Saunders, Robert J., and Jeremy J. Wsrford, Vi& age WaterSupply (Baltimore: Johns Hopkins University Press, forthe World Bank, 1976).

Schteingart, Martha (Ed.), Lar Cimbaaks La& oameri canasen as Cri sis: Pr obkmas y Desajios (M exico City: TrillasPress, 1989).

Shugart, Chris, An exploratory study of the water stand-pipe-vendor system in Jakarta, Working paper(Cambridge, MA: Harvard Institute for InternationalDevelopment, 1991).

APPENDIX: THE DETERMINANTS OF HYDR ANT AND VENDOR SUPPLIED WATER USETo measure the sensitivity of consumption to householdand market variables, particularly prices and water trans-port requirements, a simple behavioral model of waterdemand was employed. The general specification has theform:

errors. (Crane (1992) discusses related estimation and spec-iflcation issues applied to this model and these data.) TheBs are the parameters to be c&nated. Of psrt.ia~lar interestare 6, and & which may be interpreted as the price andincome elasticities of demand, respectively. This modelwas edmated by ordinary least squares methods separatelyfor customers of vended water and of hydrant water, andthe results sre reported in Tables Al and A2.

log q@ $ + 6,log pe + s, log y,+ l3&+ B& gszj + Q.where qti s the quantity of water purchased from source iby household j, pu s the per unit price of water from sourcei faced by household j, yj is the income of household j, rt+isthe time spent per week on collecting water from source i,dp s the distance to source i, 4 is a vector of household andcommunity characteristics expected to influence demand,and E is the errot term capturing data reporting and other

Struyk, Raymond J., Michael L. Hoffman and Harold M.Katsura, The Ma&r f or Shelter i n I ndonesian Citi es(Washington, DC The Urban Institute and Hasfarm DianKomulta.n, 1990).

Trava Manrani lla, I., J. Roman Calleros and F. BemalRodrIguex, Manejo AmbiuatuJmente Adecuack de1 Aguaen la Fr ontem MLx ico - Eskados Vnidos: SituationActuul y Pempectivus (Tijuana, Mexico: El Colegio de laFrontera Norm, 1991).

Whittington, Dale, Possible adverse effects of increasingblock water tariffs in developing countries, EconomicDevelopment and Cultu ral Change, Vol. 41 (October1992), pp. 75-87.

Whittington, Dale, and Kyeongac Choe, Economic benefitsavailable from the p&is&n of improved potable watersupplies, WASH Technical Report No. 77 (1992).

Whittington, Dale, Donald T. Lauria and Kinming Mu, Astudy of water vending and willingness to pay for water inOnitsha, Nine& WoridDevelomnent. Vol. 19. No. 2l3(1991),pp. i79-i98. - .

Whittington, Dale, Kinming Mu, and R. Roche, Calculatingthe value of time spent collecting water: Some estimatesfor Uktmda, Kenya, World Development, Vol. 18, No. 2@?bNWJ lgi)cl), pp. 269-280.

Whiaington, Dale, Donald T. Lauria, Daniel A. Okun andKinming Mu, Water vending activities in developingcountries: A case study of Ukunda, Kenya, Intemati~~&Journal of Water Resource Develomnent, Vol. 5 (1989).pp. 158-l-68. . _.

Wood, Geoffrey D., and Richard Palmer-Jones, The WaterSellers (West Hartford, CN: Kumarian Press, 1990).

World Bank, l7re Worl d Bank Development Report 1992(New York: Oxford Universitv Press for the World Bank.i992).

World Bank Water Demand Research Team, Ibe demandfor water in rural areas: Determinants and policy implica-tions, The Worl d Bar th Research Observer, Vol. 8(1993). pp. 47-70.

Yayasan Dian Desa, Madtoting cmd Evaluation of PublicHydrants & Water Terminals in North Jakarta: Fi nalReport (Yogyakarta, Indonesia: 1990).

Zaroff, Barbara, and Daniel A. Okun, Water vending indeveloping countries, Aqua, Vol. 5 (1984), pp. 289-295.

Note that several statistical issues are left unresolved inthis approach. It would be useful to include the price ofwater from other sources in the estimated equation, butthese are not available except in those relatively few caseswhere households purchase from more than one source. Wedo not observe the vendor price available to a householdwho chooses not to buy vended water, for example.


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WATER MARKEZS AND MARRET REFGRM 83

Table Al. De t e rm i n rm t J f v ol d c dwa t er use Table A2. De t enn i n m r t s f h yd r an t a t e r seDepend en t a r i ab l e : og of cubic metersof water plrchased from vendors per month

Independent variables E&mated standardcoefficient error

Dependent variable: Log of cubic metersof water purchased from hydrants per monthEwimamd Standard

Price per m3 (log) -0.48 0.141+Household monthly income 008) 0.03 0.190Time spent coRectin8 W&X (log) -0.03 0.014tDistance to nearest hydrant (log) -O.ooOl 0.001Purchase from hydrant -0.012 0.193Time to commute to work (minmes) -0.004 0.003Household sire 0.06 0.038Age of head of household 0.01 0.010Years in house 0.01 0.007Tenant -0.02 0.172Floa area of house (in meters) 0.0004 0.001Share toilet? (yes = 1) -0.19 0.148Reservoir capacity 0.001 0.003tLocated in rural area -0.37 0.226R2 0.572N 101*sign&ant at 1%tsigniticant at 5%

Independent variables coefficient crracPrice per ms Oog) -0.60 0.265tHousehold monthly income (log) 0.12 0.362Tie necessary for each purchase -0.002 0.01Distance to nearest hydrant (log) 0.001 0.002Purchase from vendor -1.44 0.439*Time to commute (minutes) -0.01 0.011Household size 0.08 0.065Age cf head of household -0.04 0.016tYears in house -0.005 0.013Tenant 0.42 0.341Floor area of house (in meters) o.ooo2 0.005Share toilet? (yes = 1) -0.1 0.386Reservoir capacity -O.).oooool o.OOo&?Rural location -0.482 0.530R* 0.763N 43*significant at 1%~significant at 5%

Simultaneity issues may also be important, as in the endo-geneity of reservoir sire. Given the length of tenure in thissample, this may not be a substantial problem The reser-voir investment decision was certainly codetermined withthe expected need for water, but in many instances that wsssome years ago. Fcr all practical puposes. the size of thewater storage facility can be considered exogenous to any

one weeks water purchase decision. This is less true ofhouseholds who have recently acquired their storage tank,and the issue should be carefully addressed in futureresearch. lbe codetermination of source and quantity pur-chased is a separate and somewhat complex issue notaddressed here. See Mu, Whittington and Briscce (1990)and Altaf, et al. (1990) for empirical strategies.

Crane - Water Market, Result From Jakarta

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