The Economic Value of Basin Protection to Improve the Quality and Reliability of Potable Water Supply: Some Evidence from Ecuador

per year. If we assume a 10 percent discount rate and an infinite project life this translates into a
capital value of $696 per household, meaning that the Loja residents are implicitly willing to
fund a one-time investment of $17 million (to be financed with an additional $5.80 monthly
charge over the project lifetime).

The average cost of the land in the “El Carmen” and “San Simon” micro-basins area is
between $300 and $700 per hectare (NCI, 2006). Using an average value of $500 per hectare, the
total cost of purchasing the land is $800 thousand. The costs of protecting and conserving the
basin areas have been estimated at $40,000/year (see NCI, 2006). The capital value of the costs
of protection and conservation of the basin area, using the previously mentioned assumptions
regarding project life-time and the discount rate, equals $400 thousand. Hence, project benefits
exceed the capital value of project cost by more than 14-fold.

Summary and Final Remarks

The objective of this study was to estimate the economic value that people living in an urban
area of a developing country place on the protection of two basins when the protection is
designed to improve the quality and reliability of the water supply for human consumption of
urban residents. The data was collected using a face-to-face survey conducted in December 2005
in Loja, Ecuador. The empirical results indicate that households are WTP an average of $5.80
per month, a 25 percent increase in the monthly water bill, to preserve the basins. The main
variables found to affect the WTP are current monthly water cost, the perception about the
fairness of the existing water tariff (cost of water), the number of hours that service is available,
and the gender of the individual interviewed.

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