Water Resour Manage (2008) 22:1825–1834

DOI 10.1007/s11269-008-9255-7

Evaluating Consumers’ Willingness to Pay for Improved

Potable Water Quality and Quantity

M. Genius & E. Hatzaki & E. M. Kouromichelaki &

G. Kouvakis & S. Nikiforaki & K. P. Tsagarakis

Received: 3 December 2005 / Accepted: 11 January 2008 /

Published online: 22 February 2008
# Springer Science + Business Media B.V. 2008

Abstract The present research is about water supply shortages and low drinking water
quality in the Municipality of Rethymno during peak water demand periods. More
specifically, the aim of this work is to elicit Rethymno residents’ willingness to pay (WTP),
by applying the CVM methodology, as the percent over their water bill, for the completion
of future projects that the Municipal Enterprise for Water Supply and Sewerage (MEWSS)
of Rethymno intends to implement to avoid shortages and improve tap water quality. The
current contingent valuation study is performed based on data collected through personal
interviews where respondents are asked about their WTP for a given improvement in the
water supply. The results point out that female respondents, households with high income,
with children, and households which do not use tap water for drinking, are on average
willing to pay more. The mean WTP for these future projects was estimated to be 10.64 €
(17.67% of the average bill). The mean WTP amount can be useful to decision makers
undertaking an environmental cost benefit analysis, where full cost should be recovered.
Interviewing people in the context of a valuation scenario, informs them for improvements
that will be undertaken from the new projects under consideration and at the same time
involves them as users in the decision making process.

Keywords Contingent valuation . Double bound dichotomous choice .

Drinking water quality . Water shortages . Water economics . Willingness to pay

1 Introduction

Providing a reliable water supply is a challenge for modern water companies. Reliability
means not only the provision of the full demanded water quantities to all residents, but also

M. Genius : E. Hatzaki : E. M. Kouromichelaki : G. Kouvakis : S. Nikiforaki

Department of Economics, University of Crete, University Campus, 74100 Rethymno, Greece

K. P. Tsagarakis (*)
Department of Environmental Engineering, Democritus University of Thrace, 67100 Xanthi, Greece
e-mail: kandila@her.forthnet.gr
1826 M. Genius et al.

the provision of water of substantial quality to be consumed directly from the distribution
network at all times. Water quality and quantity are interrelated. Unless supply is
continuous, then water quality may deteriorate due to soil infiltration into the distribution
network (see Genius and Tsagarakis 2006). On the other hand, even if a continuous flow
can be secured, the presence of various physicochemical parameters may prevent direct
water drinking from the tap. Of major concern has been the presence of trihalomethanes
(Kampioti and Stephanou 2002), arsenic (Shaw et al. 2005) and high salinity (Suleiman
et al. 2004). Improvements to the water quality supplied by the municipalities will result in
higher cost of this service which will have to be borne by the users and acceptability of any
additional charges should be investigated.
In such cases the Contingent Valuation Methodology (CVM) can be used to: (a) elicit
people’s preferences and (b) estimate their willingness to pay (WTP). The objective of this
study is to apply the CVM methodology for the valuation of the improvement, in potable
water quality and quantity in Rethymno, a medium sized Greek, town. This improvement
will be achieved through the implementation of specific projects and actions described in
the valuation scenario.
By undertaking this CVM study decision makers are thus not only able to evaluate the
acceptability of the given project, but also to estimate the value of this improvement in the
water service for the end users. With a cost benefit analysis at hand, decisions will be taken
based on economic criteria. Furthermore, decision makers will know whether some
socioeconomic characteristics of the respondents actually determine their willingness to
pay. Such socioeconomic characteristics may include gender, age, income, education level,
specific attitudes and preferences. A thoroughly designed questionnaire and its piloting are
essential for the elicitation of such effects on WTP to be possible.
Moreover, the application of this methodology can be of interest to other water
companies and/or municipalities that wish to value the acceptability of similar projects.
What is of major benefit in applying this methodology is the information and consultation
of the public as a corollary of the 2000/60/EC water framework directive (Tsagarakis
2005a). The 14th principle states clearly the importance of involving the public in the
decision making process and their information. “The success of this Directive relies upon
close cooperation and coherent action at Community, Member States and local level as well
as on information, consultation and involvement of the public, including users” (EU 2000).
Results in this paper show that residents are indeed willing to pay significant amounts for
improving the water quality and quantity supplied by the municipality.

2 Research Methodology

2.1 Contingent Valuation for Water Supply and Water Quality Projects

The value a household places on a change in the supply of a good can be inferred from its
present behaviour through the choices the household makes but also through the stated
choices a household declares when confronted to a hypothetical scenario of a supply
change. Revealed preference methods deal with the first type of evaluation methods while
stated preference methods try to infer values from hypothetical choices. The Contingent
Valuation Method (CVM) is an example of a stated preference method which has been
widely used to elicit people’s preferences, especially in cases where there is not a real
market for a good. It entails the collection of survey data where for example people are
asked to express how much they are willing to pay for an increase in the provision and/or
Evaluating consumers’ willingness to pay for improved potable water quality and quantity 1827

quality of a good. A few examples of studies that have elicitated citizens’ Willingness to
Pay (WTP) for improving drinking water quality are given by Briscoe et al. (1990),
Whittington et al. (1991), Raje et al. (2002), Jalan et al. (2003), Whitehead (2003), and
Hensher et al. (2004). California urban water agencies conducted a Contingent Valuation
Survey for water supply reliability where customers were asked how much they were
willing to pay to avoid water shortages of varying magnitude and frequency (Barakat and
Chamberlin Inc. 1994). A number of CVM studies on water supply and sanitation are
summarised and evaluated by Parry-Jones and Cotton (1999). Kontogianni et al. (2003)
used a CVM study to estimate the WTP for the water quality improvements that would
come as a result of an appropriate wastewater treatment. Genius et al. (2005), examine
WTP for an improved environment resulting from the construction of a wastewater
treatment facility. Finally, Genius and Tsagarakis (2006) have studied the WTP of
Heraklion residents (another Greek town) for the implementation of projects that will lead
to a continuous water supply.
Different formats can be adopted in a contingent valuation study, for instance the open-
ended format would directly ask questionnaire respondents what is the maximum amount they
would be willing to pay for the improvement, while the single bound format would present the
respondents with a given price (bid) and ask them whether they would be willing to pay
the given price. Because the single bound format mimics better market situations in which the
decision is of the type take-it or leave-it and because it has better properties in terms of incentive
compatibility (see NOAA panel report in Arrow et al. 1993) its use is more overspread than the
open-ended format. However, it has long been recognized that the information conveyed by a
single yes–no type question is limited and efficiency of the willingness to pay (WTP)
estimates might require the collection of a large number of questionnaires.
The double bound format, which is the one adopted in the present paper, was devised as
a means of getting more information without having to collect additional questionnaires
through the introduction of a second willingness to pay question. In the double bound
format, respondents are further asked a second question where the bid offered in the second
question is higher (or lower) than the initial bid depending on whether the response to the
first question is yes (or no). Therefore the double bound format conveys information about
the interval where the willingness to pay for each respondent lies. This information can be
used to estimate relevant parameters of the WTP distribution such as the mean or the
median and furthermore the effects of households characteristics on the mean WTP can be
estimated from the data collected in the questionnaires as we show in section 3.3.

2.2 Model Specification

A log-linear specification given by ln ðWTPi Þ ¼ Yi
¼ Xi β þ "i was used in the present
study, where i is the consumer index, "i  N ð0; σ2 Þ and Yi
is not observed but we observe
the yes or no answer to the two bids. This specification implies that the expressions to
compute mean and median WTP from the above specification are provided by the
following formulae (Cameron 1988):
 
σ^ 2
Estimated WTPmean ¼ exp xβ^ þ ð1Þ
2

 
Estimated WTPmedian ¼ exp xβ^ ð2Þ
1828 M. Genius et al.

where,
x vector of mean values of the explanatory variables,
β^ vector of estimated coefficients, and
^
σ estimated σ.

3 Survey Design and Description of Data

The nature of the problem being studied, the valuation scenario for solving this problem,
the description of the collected data and the WTP estimates are presented in this section.

3.1 The Problem being Studied and the Valuation Scenario

Rethymno town is located on the north coastline of Crete. With a population of 29,000 (this
number increases to 45,000 during the summer months) it is the third largest town of Crete.
The Municipal Enterprise for Water Supply and Sewerage (MEWSS) is the town’s provider
of drinking water and the present water supply network covers 99% of the existing
households. Water comes from several springs and wells in Argiroupoli (5,000 m3/day) and
Platanias (10,500 m3/day).
Water supply is basically continuous. However during peak periods (August and
September), demand increases due to tourism, resulting in water cuts, since not all demand
can be catered for at the same time. Furthermore, in periods of draught, farmers in some
areas use scarce water for irrigation making the situation worse. The MEWSS claims that
70% of citizens are not affected by these water cuts because cuts are supposed to affect
mainly regions at higher altitudes. In addition, the presence of water cuts has important
implications for tap water quality reaching the consumer. Due to sewerage network
construction deficiencies, when supply is on, water exits the pipes to the soil. When water
supply stops, pipes are emptied causing some water to come back into the pipes due to sub-
pressure, sweeping soil which sediments inside the pipes. This soil is carried into the
households’ taps, causing turbidity, and making them, occasionally or permanently,
unwilling to use it for drinking.
To solve this quantitative problem, which has qualitative impacts, new sources of water
supply should be sought. Two of them have already been proposed for this purpose: (a) use
water from Kournas’ lake (located west of Rethymno town) and (b) exploit the springs of
Potamon (located south of Rethymno town). The MEWSS has planned to construct a water
treatment filtration unit in the lake of Kournas that will pump about 6,000 m3/day.
Additional water sources can be supplemented through the construction of a dam and a
water filtration unit in the region of Potamon which is under planning. Moreover, there is a
possibility to exploit certain wells at the region of Koumous, as a backup source of water.
Another supplementary measure would be to restructure and reconstruct the whole town
network so that water losses are minimized.
When a CVM study is undertaken, the payment vehicle should be clearly defined. In the
case of water supply improvements the most appropriate payment vehicle is an additional
charge to the water bill, since water volumes are directly related to the tap water bill.
Standard household charges are presented in Table 1. The municipality applies a two-part
tariff consisting of a fixed first part and a second part being an increasing block, which is
typical of many water utilities worldwide (Tsagarakis 2005b). Additional charges include
an investment surcharge of 80% over the water charge (which covers investment in network
Evaluating consumers’ willingness to pay for improved potable water quality and quantity 1829

Table 1 Water tariffs for Rethymno town (quarterly basis for the year 2005)

Tariff component Residential tariffs

Fixed cost 13.23 €

Block charge
Consumption 1–20 m3 0.41 €/m3
Consumption 21–50 m3 0.62 €/m3
Consumption 51–100 m3 0.80 €/m3
Consumption >100 m3 0.90 €/m3
Other costs
Investment surcharge 80% over the water charge cost
Sewerage surcharge 100% over the water charge cost
VAT for water supply 8%
VAT for sewerage 18%

infrastructure) and a 100% surcharge for wastewater treatment. Finally, an 8% VAT is

charged on the water cost and an 18% for the wastewater cost. This tariff policy is typical
for Greek MEWSS (Safarikas et al. 2005).

3.2 Data Description

The survey took place between the months of November 2004 and January 2005 and was
carried out door-to-door by four trained students on 306 (out of a total of 11,000)
households in Rethymno. Data were collected through the completion of a detailed
questionnaire. At the beginning of each interview respondents were informed that they had
been selected randomly for a survey conducted by the University of Crete. They were asked
to get a hold of their last water bill since the survey would need to draw detailed data from
that. The questionnaire consisted of four parts. The first part was the introduction
containing warm up questions concerning various problems of modern society. In a five
point scale ranging from “very little important” to “very much important”, residents ranked
the drinking water quality problem as third in significance (51.8%), after unemployment in
the first position (64.9%) and drugs in the second (64.9%), according to the “very much
important category”, as shown in Table 2. Note that in the same table, groundwater
pollution is ranked as the eleventh most significant problem and shortage of water as the
thirteenth.
The second part of the questionnaire encompassed questions related to drinking water
availability, actions taken to save water and prevent water shortages. When asked whether
they had run out of water – and how often – in the previous year, 49% of the respondents
answered no, 10.8% answered yes once, 32% replied yes 2–6 times, 6.5% replied yes 7–12
times, and 1.6% replied yes more than 12 times. We enquired on the respondent’s personal
opinion about whether water cuts in the town can be eliminated and at which time horizon:
14.4%, replied that it can be solved within 6 months; 11.1% within 6–12 months; 19.6%
within 1–3 years; 11.8% in more than 3 years; while 43.1% could not give an estimate. In
addition, when asked whether they take any actions to reduce water consumption, 84.6%
answered they didn’t.
Table 3 shows the mean, median, first and third quartiles for the variables house size,
water consumption, total water bill and the percentage of income spent on the water bill. As
income was elicited through a close ended question, the middle point for the following
intervals (0–500€, 500–1,000€, 1,000–1,500€,…, 4,500–5,000€) was used.
1830 M. Genius et al.

Table 2 Ranking of today’s society problems by citizens of Rethymno town (%)

Very little Little Neither important nor Very Very much

important important unimportant important important

Unemployment 1.0 1.3 8.5 24.3 64.9

Drugs 1.0 2.0 9.5 22.6 64.9
Drinking water quality 1.0 3.0 18.4 25.9 51.8
Traffic 1.0 3.3 17.4 29.5 48.9
Illegal immigration 3.0 4.9 18.0 29.2 44.9
Uncontrolled rubbish dumping 0.3 6.2 14.8 34.1 44.6
Poverty 1.0 3.3 25.6 26.9 43.3
Crime 2.3 4.9 17.4 33.4 42.0
Air pollution 3.3 6.2 18.7 31.1 40.7
Cost of living 0.7 1.0 16.7 41.0 40.7
Underground water pollution 2.0 7.2 19.0 32.1 39.7
Rare species’ extinction 2.6 4.9 19.7 33.4 39.3
Shortage of water 3.0 8.2 19.7 30.2 39.0
Public land trespassing 6.6 7.2 17.4 32.2 36.5
Power cuts 6.2 7.2 31.5 26.2 28.9

The third part of the questionnaire focused on people’s perceptions and attitudes towards
water quality. As for perceptions, 0.7% of the sample perceive the quality of drinking water
as being very good, 12.1% as good, 34.6% as average, 30.4% as bad, and 22.2% as very
bad. Only 16.3% of the surveyed households had installed private tanks in order to
eliminate the impacts from water shortages. Concerning the question, “Do you drink tap
water?”, 32% replied “always”, 10.1% replied “always apart from minor exceptions”,
17.6% replied “rarely” and 40.2% replied “never”. Of those respondents who drink tap
water, 13% declared they use a tap filter, 2.9% use special filter jugs and 0.3% boil water
before use, while the rest do not do anything to improve the tap water quality. In addition,
when asked whether they use tap water for cooking 91.5% of the respondents replied
“always”, 4.6% “always apart from minor exceptions”, 2.3% “rarely” and 1.6% “never”.
Average bottled water consumption was 20.36 bottles per family per week out of the 170
families who reported to occasionally or permanently buying bottled water. Alternative
sources of drinking water other than tap water consisted of bottled water (55.6%), spring
water (5.2%) and transporting water from other municipalities (3.9%).
Table 4 presents the respondents’ qualitative characterization of drinking water as is
referred by its colour, its smell or existence of other problems. The major problem seems to
be related to water chlorine smell with 70% of the respondents reporting problems. In
addition a non negligible percentage declared to have detected an unusual water colour in
their taps. There is therefore room for an improvement in the quality from the respondents’
perspective.

Table 3 Descriptive statistics for selected variables

Variable Mean 1st Quartile Median 3rd Quartile

House size (m2) 90.54 75 90 105.5

Water consumption (m3/3 months) 32.19 18 30 41
Water bill (€) 60.19 35 53 75
Percentage of income spent on the water bill (%) 2.03 0.82 1.33 2.45
Evaluating consumers’ willingness to pay for improved potable water quality and quantity 1831

Table 4 Qualitative characterisation of the drinking water according to consumers’ opinion (%)

Never A few times Often Always

Unusual water colour 22.5 43.9 30.7 2.9

Chlorine smell 11.1 19.9 55.0 14.0
Other problem 80.1 5.2 9.8 4.9

The third part of the questionnaire was followed by an information section. It described
clearly the proposed projects, the improved situation and the expected benefits deriving
from these projects. Bids were expressed as a percentage increase in the water bill because
any additional fees charged by the municipality are calculated on the basis of percentage
increases of the bill. To facilitate answering, percentage increases were directly computed to
money amounts according to the average water bill. This was necessary since respondents
may find it difficult to calculate or understand percent increases. Then a double bound
dichotomous choice question was posed with the following wording: “Suppose that the
specific projects described will result in no water shortages and hence the water quantity
and subsequently quality will be improved. Would you be willing to pay x €? If their answer
was yes, a second question asked them whether they were willing to pay for y € (y>x). If their
answer was no then the second bid was given by z € (z<x). Finally, the respondents were
asked for the maximum amount they were willing to pay. Those respondents who gave zero
for an answer were further asked some debriefing questions to determine the reasons behind a
zero response and therefore we could distinguish respondents with zero WTP (real zeroes)
from those giving a zero response but having a positive WTP (protest votes). In effect, some
respondents might report zero values because they can not afford the proposed improvement
or even if they can afford it they are not interested in the proposed change and therefore their
responses would constitute real zeroes, while respondents reporting zero values because they
are opposed to the payment vehicle or do not trust that the municipal provider can bring about
the change do indeed value the change positively but they express their discontent by giving a
zero value. For the x, y, z payments three different versions of bids were used and randomly
distributed across respondents, these being expressed as percentages on top of the water bill
corresponding to the following percentage increases: [20%, 10%, 30%], [10%, 5%, 15%] and
[15%, 25%, 35%]. The responses given per bid and questionnaire version are presented in
Table 5.
The last questionnaire section included socio-economic characteristics of the respond-
ents, like age, gender, income, education level and number of dependents in the family and
the age composition (infants, children and elderly).

Table 5 Surveyed households frequency classified by bid values (percentages in parenthesis)

Questionnaire Bid values YY YN NY NN Total

version [Initial: Lower: Upper]

1 [20%:10%:30%] 16 (14.04) 36 (31.58) 13 (11.40) 49 (42.98) 114

2 [10%:05%:15%] 49 (53.85) 17 (18.68) 4 (4.40) 21 (23.08) 91
3 [25%:15%:35%] 20 (19.80) 24 (23.76) 4 (3.96) 53 (52.48) 101
Total 85 77 21 123 306

YY Replied Yes to both bids, YN Replied Yes to first and No to the second bid, NY Replied No to first and
Yes to the second bid, NN Replied No to both bids
1832 M. Genius et al.

3.3 Willingness to Pay Estimates

3.3.1 Zero Bids

WTP responses included 90 real zeros (29.4%). These were verbatim “I cannot afford it (11
responses)”, “I believe that this service should be provided without extra money (79
responses). The responses included also 19 “non-real” zeros (6.1%). These were: “I do not
believe that water quality could be improved even if we had continuous flow (5 responses),
“I do not believe that the MEWSS can provide me with continuous flow” (1) and some
other response types which we considered belonged to Protest Zeros (13 responses).

3.3.2 Factors Explaining Willingness to Pay Results

All categorical variables were recoded to dummy variables. Successive application of the
Likelihood Ratio (LR) tests led us to a specification with nine variables. Summary statistics
of these variables are given in Table 6.
The CUBM variable was significant at the 1% level. The SEX, WSML, NOWA and
DRIN1 variables were significant at the 5% level, CH2TO18, was significant at the 10%
significance level. Furthermore, the variables PRWQ and FINC and DRIN2 with a
t-statistic greater than 1 were included in the final model. Table 7 presents the estimation
results. It can be concluded that those who consume larger quantities of water (CUBM) are
willing to pay less, as they already pay a lot due to their high consumption and a percentage
increase of the water charges will affect them greatly.
Women (SEX) are willing to pay on average more as would be expected since they are
more directly involved in the day-to-day needs of the household (cooking, shopping bottled
water, etc.). Those who drink bottled water (DRIN1) and those who carry water from
springs or other municipalities (DRIN2) want to pay on average more than tap water
drinkers because this would reduce the costs and inconvenience associated with buying and
transporting drinking water. Moreover, those who complain about water chlorine smell
(WSML) are willing to pay less on average and this could reflect their belief that chlorine
smell is not likely to go away with the proposed project. Respondents who ran out of water
during the previous year (NOWA) are willing to pay on average less. This looks
contradictory, but we should bear in mind that people affected by cuts have the same water
charges as the rest of the customers who do not face water cuts. So they might not want to

Table 6 List of variables and descriptive statistics

Description Variable Mean (SD)

Have children between 2 to 18 years old CH2TO18 0.392 (0.489)

1=Female, 0=Male SEX 0.706 (0.456)
Chlorine smell in water: 1=smell, 0=No smell WSML 0.889 (0.315)
I value water quality as: 1=Important, 0=Not Important PRWQ 0.775 (0.419)
Running out of water the last year: 1=Yes, 0=No NOWA 0.510 (0.501)
Water consumption in m3 of water CUBM 32.193 (20.002)
Drink bottled water: 1=Bottled, 0=otherwise DRIN1 0.592 (0.492)
Drink water from a spring or another municipality: 1=spring, other DRIN2 0.088 (0.284)
municipality, 0=Otherwise
Monthly family income: 1=≤ 1500 €, 0=>1500 € FINC 0.595 (0.492)
Evaluating consumers’ willingness to pay for improved potable water quality and quantity 1833

Table 7 Variable statistics and estimation results

Variable Coefficient t-Statistic Probabilities

C −1.1696 −3.4221 0.0006

CH2TO18 0.2832 1.8148 0.0696
SEX 0.3269 2.0331 0.0420
WSML −0.6133 −2.2576 0.0240
PRWQ −0.2154 −1.1254 0.2604
NOWA −0.3366 −2.2878 0.0221
CUBM −0.0119 −3.1001 0.0019
DRIN1 0.3839 2.4300 0.0151
DRIN2 0.3522 1.2120 0.2255
FINC −0.2210 −1.4497 0.1471
σ 1.0805 11.7577 0.0000
Log likelihood −384.9467

pay more for having a water supply to which they perceive they are entitled anyway. People
who have children from 2 to 18 years old (CH2TO18) are willing to pay on average more.
People with lower incomes (FINC≤1,500€) are willing to pay less as expected. Finally,
people who value water drinking quality as important (PRWQ) are willing to pay less. The
reason for this may be that they perceive the water quality offered by the municipality as
being unsatisfactory.
Since real zeros constitute about 29.4% (=p) of the responses, we calculate the mean
WTP as WTP ¼ 0  p þ E ðWTP=WTP > 0Þ  ð1  pÞ. The estimated values and confi-
dence intervals are provided in Table 8. The delta method was used to obtain the confidence
intervals (Greene 1993).

4 Conclusions

Mean WTP of Rethymno citizens for improved water quality and quantity was estimated to
be 17.67% over their water bill, which is equivalent to 10.64 €. This means that residents
are willing to pay this amount of money over their water bill for an improved service that
will allow them to have a continuous water supply and consequently improved water
quality suitable for direct consumption. A further investigation over the costs of this
investment should take place to examine economic viability. High-income families, families
with children, female respondents and households where tap water is not used for drinking
are willing to pay on average more. Respondents who value water quality as important,
those with high water bills and those who were affected by water cuts are willing to pay on
average less. It is possible that the latter group is expressing more its discontent towards the
current situation than the real value it attaches to having a continuous water supply. In

Table 8 Mean and median WTP statistics

Statistics WTP 95% Confidence interval

% of Bill Corresponding amount (€) % of Bill Corresponding amount (€)

Mean 17.67 10.64 [13.29–22.04] [8.00–13.27]

Median 13.29 5.93 [7.33–12.38] [4.41–7.45]
1834 M. Genius et al.

concluding it should be emphasized as well that CVM studies can be very useful for two
reasons. First, they help valuating the benefits arising from environmental projects, which is
essential in a Cost Benefit Analysis. Second they inform and involve users in the decision
making process.

Acknowledgements An earlier version of this paper was presented at the International Conference on Water
Economics, Statistics, and Finance, 8–10 July 2005, Rethymno, Greece as a poster presentation.

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