THE VALUE OF GOOD QUALITY DRINKING WATER TO CANADIANS AND THE ROLE OF RISK PERCEPTIONS: A PRELIMINARY ANALYSIS

Abstract

Canadian municipal water utilities have had to face many difficulties in the past few years, not the least of which has been an erosion of consumer confidence in the safety of publicly supplied drinking water. This paper discusses how economic theory is used to develop a methodology for determining consumers’ or society's preferences for better quality drinking water and how these preferences are expressed in the trade-offs made between money and two different types of risk reductions: mortality and morbidity. These trade-offs are observed by examining actual consumer behavior and/or in structured (hypothetical) market choices. The information gained can be used to structure more efficient water pricing schemes for municipal water utilities and to aid these utilities in their infrastructure investment decisions.

This paper was completed while Dupont was on sabbatical at CSERGE (Centre for Social and Economic Research on the Global Environment), University of East Anglia, Norwich, UK. The authors thank Michael Batz for his assistance with the creation of the templates for the choice task scenarios, Jennifer Roik and Anne Huennemeyer for providing background research services, and Paul De Civita and Andrew MacDonald of Health Canada/Santé Canada for helpful discussions and support of this project. We gratefully acknowledge funding support from Health Canada/Santé Canada and the Canadian Water Network/Réseau canadien de l'eau for this work, which is part of a larger research project being undertaken with Pierre Payment, INRS, Université de Laval.

Notes

*Krewski et al. (2002) detail the framework adopted for the development of these guidelines. Also the paper provides a review of water-related diseases outbreaks in Canada and the United States and gives a comprehensive analysis of current knowledge relating to testing for the presence of microbiological organisms in drinking water.

†Renzetti (1999) estimates that prices charged to residential and commercial customers in Ontario are only one-third and one-sixth of the estimated marginal cost for water supply and sewage treatment, respectively.

*This approach can be used to examine public policy questions that require the valuation of health care impacts from drinking water quality improvements. A widely used alternative approach is the QALY (Torrance, 1986) or quality-adjusted life year measure. A QALY is the arithmetic product of life expectancy and a derived measure of the quality of the remaining life years. It assumes that 1 yr of perfect health-life expectancy is worth a maximum value in terms of the health utility gained by an individual. Any 1 yr of less than perfect life expectancy is valued at something less than one. Death is valued at zero. While life expectancy rates are taken to be objective measures obtained from survival tables, the utility gain from particular health states is largely a subjective number obtained by attaching valuations to different health states. There are two main ways for obtaining these numbers. The first comes from expert opinion based on observation of morbidities, while the second comes from surveys that ask respondents to score health states or to trade off years in different health states (to achieve equivalent utility outcomes) or to trade off an unhealthy state with a probability of a healthy state. QALYs are valid representations of welfare only under certain restrictions. A complete description of these restrictions is beyond the scope of this paper; however, the following works are recommended for the interested reader: Fabian, (1994), and Garber et al. (1996). Havelaar et al. (2000) have used a modification of the QALY approach to compare the risks and benefits of treating drinking water with ozone to reduce the risk of infection from cryptosporidium. The downside of the ozone disinfection process is the concomitant increase in the risk of renal-cell cancer through the production of bromate as a byproduct. They calculate a DALY (disability adjusted life years) measure. The median risk of infection per person per yr of 1 in 1000 assumed in their paper is the one we adopt for our purposes. They find the health benefits of preventing gastroenteritis in the general population along with the avoided premature deaths associated with the disease to outweigh the health losses of premature death from renal-cell cancer by a factor of 10 and a net benefit of 1 DALY per million person-years.

*Work by Jardine et al. (1999) suggests that when consumers make a connection between drinking-water odors and health risks, they should be taken seriously, rather than being dismissed as irrational.

*Random utility theory argues that individual consumers choose alternatives that provide them with the greatest utility. Therefore, the probability of selecting an alternative increases as the utility associated with it increases. The utility that an individual derives from an alternative is considered to be associated with the attributes of the alternative, and his or her utility function is composed of a deterministic component and an unobservable or stochastic component called the error term. McFadden (1974) is a particularly influential reference for the promotion of the usefulness of this construct.

*Random error is caused by any factors that are not observed by the researcher but affect the choices made by the individuals.

*Two epidemiological studies suggest that drinking water from water treatment plants following stand ard treatment processes could be responsible for half of the cases of gastrointestinal illnesses in the receiving population (Payment et al., 1991, 1997).

*The amount of chlorine that reacts with the other chemicals in the water plus the amount required to achieve disinfection is the chlorine demand of the water. Free chlorine is the extra amount of chlorine added to the water in most traditional disinfection processes. It is the culprit in the production of disinfection by-products such as trihalomethanes.

*Prior to undertaking any research with human participants in Canada researchers need to make an ethics application to the Research Ethics Board of their home university. The application follows the guidelines set out by Tri-Council granting agencies. This project received ethics approval from both Brock University and the University of Alberta