Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study
As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criter...
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| Format: | Publications & Research |
| Language: | en_US |
| Published: |
World Bank, Washington, DC
2015
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| Subjects: | |
| Online Access: | http://hdl.handle.net/10986/21582 |
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okr-10986-21582 |
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oai_dc |
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Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
en_US |
| topic |
adequate water administrative procedures average level case study connection charge connection charges connection subsidy contingent valuation cubic metre data analysis data availability data requirements data sources designing policies distributional impact economic behavior economic circumstances economic data efficient use of water empirical analysis expenditures extreme poverty financial sustainability geographical area household income household survey households income income distribution income levels institutional arrangements institutional framework investment subsidies living conditions living standards living standards measurement low-income households management of water measuring poverty municipalities nutrition payment of bills per-capita income policy instruments policy research poor households poor people potable water potable water supply poverty criteria poverty index poverty levels poverty line poverty map poverty trap private sector public health public ownership public utilities public utility public water regulatory agency regulatory framework regulatory frameworks residential customers rural areas sanitation facilities sanitation sector sanitation services savings service provider sewerage bills sewerage companies sewerage infrastructure sewerage network sewerage sector sewerage service sewerage services social groups social policy social sectors targeting performance tariff structure toilet facilities urban areas urban population water companies water consumption water resources water sector water sector reform water services water tariffs water utilities water utility willingness to pay water supply & sanitation subsidies case studies eligibility criteria household consumption administrative costs willingness to pay poverty incidence variable costs target groups beneficiary capacity concessionality design criteria institutional framework welfare recipients |
| spellingShingle |
adequate water administrative procedures average level case study connection charge connection charges connection subsidy contingent valuation cubic metre data analysis data availability data requirements data sources designing policies distributional impact economic behavior economic circumstances economic data efficient use of water empirical analysis expenditures extreme poverty financial sustainability geographical area household income household survey households income income distribution income levels institutional arrangements institutional framework investment subsidies living conditions living standards living standards measurement low-income households management of water measuring poverty municipalities nutrition payment of bills per-capita income policy instruments policy research poor households poor people potable water potable water supply poverty criteria poverty index poverty levels poverty line poverty map poverty trap private sector public health public ownership public utilities public utility public water regulatory agency regulatory framework regulatory frameworks residential customers rural areas sanitation facilities sanitation sector sanitation services savings service provider sewerage bills sewerage companies sewerage infrastructure sewerage network sewerage sector sewerage service sewerage services social groups social policy social sectors targeting performance tariff structure toilet facilities urban areas urban population water companies water consumption water resources water sector water sector reform water services water tariffs water utilities water utility willingness to pay water supply & sanitation subsidies case studies eligibility criteria household consumption administrative costs willingness to pay poverty incidence variable costs target groups beneficiary capacity concessionality design criteria institutional framework welfare recipients Foster, Vivien Gomez-Lobo, Andres Halpern, Jonathan Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| geographic_facet |
Latin America & Caribbean Panama |
| relation |
Policy Research Working Paper;No. 2344 |
| description |
As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criteria for direct subsidy schemes is difficult, and identifying eligible households may entail substantial administrative costs. The authors, using a case study from Panama, discuss some of the issues associated with the design of direct subsidy systems for water services. The conclude that: 1) There is a need to assess - rather than assume - the need for a subsidy. A key test of affordability, and thus of the need for a subsidy, is to compare the cost of the service, with some measure of household willingness to pay. 2) The initial assessment must consider the affordability of connection costs as well as the affordability of the service itself. Connection costs may be prohibitive for poor households with no credit, suggesting a need to focus subsidies on providing access, rather than ongoing water consumption. 3) A key issue in designing a direct subsidy scheme is its targeting properties. Poverty is a complex phenomenon, and difficult to measure. Eligibility must therefore be based on easily measurable proxy variables, and good proxies are hard to find. In choosing eligibility criteria for a subsidy, it is essential to verify what proportion of the target group fails to meet the criteria (errors of exclusion) and what proportion of non-target groups is inadvertently eligible for the benefits (errors of inclusion). 4) administrative costs are roughly the same no matter what the level of individual subsidies, so a scheme that pays beneficiaries very little, will tend not to be cost-effective. It is important to determine what proportion of total program costs will be absorbed by administrative expenses. 5) Subsidies should not cover the full cost of the service, and should be contingent on beneficiaries paying their share of the bill. Subsidies for consumption above a minimum subsistence level, should be avoided. Subsidies should be provided long enough before eligibility is reassessed to avoid "poverty trap" problems. 6) The utility or concessionaire can be helpful in identifying eligible candidates, because of its superior information on the payment histories of customers. It will also have an incentive to do so, since it has an interest in improving poor payment records. Thought should therefore be given at the design stage to the role of the service provider in the implementation of the subsidy scheme. 7) The administrative agency's responsibilities, the sources of funding, and the general principles guiding the subsidy system should have a clear legal basis, backed by regulations governing administrative procedures. 8) To reduce administrative costs, and avoid duplication of effort, it would be desirable for a single set of institutional arrangements to be used to determine eligibility for all welfare, and subsidy programs in a given jurisdiction, whether sub-national, or national. |
| format |
Publications & Research |
| author |
Foster, Vivien Gomez-Lobo, Andres Halpern, Jonathan |
| author_facet |
Foster, Vivien Gomez-Lobo, Andres Halpern, Jonathan |
| author_sort |
Foster, Vivien |
| title |
Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| title_short |
Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| title_full |
Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| title_fullStr |
Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| title_full_unstemmed |
Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study |
| title_sort |
designing direct subsidies for water and sanitation services : panama—a case study |
| publisher |
World Bank, Washington, DC |
| publishDate |
2015 |
| url |
http://hdl.handle.net/10986/21582 |
| _version_ |
1764448635597094912 |
| spelling |
okr-10986-215822021-04-23T14:04:03Z Designing Direct Subsidies for Water and Sanitation Services : Panama—A Case Study Foster, Vivien Gomez-Lobo, Andres Halpern, Jonathan adequate water administrative procedures average level case study connection charge connection charges connection subsidy contingent valuation cubic metre data analysis data availability data requirements data sources designing policies distributional impact economic behavior economic circumstances economic data efficient use of water empirical analysis expenditures extreme poverty financial sustainability geographical area household income household survey households income income distribution income levels institutional arrangements institutional framework investment subsidies living conditions living standards living standards measurement low-income households management of water measuring poverty municipalities nutrition payment of bills per-capita income policy instruments policy research poor households poor people potable water potable water supply poverty criteria poverty index poverty levels poverty line poverty map poverty trap private sector public health public ownership public utilities public utility public water regulatory agency regulatory framework regulatory frameworks residential customers rural areas sanitation facilities sanitation sector sanitation services savings service provider sewerage bills sewerage companies sewerage infrastructure sewerage network sewerage sector sewerage service sewerage services social groups social policy social sectors targeting performance tariff structure toilet facilities urban areas urban population water companies water consumption water resources water sector water sector reform water services water tariffs water utilities water utility willingness to pay water supply & sanitation subsidies case studies eligibility criteria household consumption administrative costs willingness to pay poverty incidence variable costs target groups beneficiary capacity concessionality design criteria institutional framework welfare recipients As an alternative to traditional subsidy schemes in utility sectors, direct subsidy programs have several advantages: they are transparent, they are explicit, and they minimize distortions of the behavior of both the utility, and the customers. At the same time, defining practical eligibility criteria for direct subsidy schemes is difficult, and identifying eligible households may entail substantial administrative costs. The authors, using a case study from Panama, discuss some of the issues associated with the design of direct subsidy systems for water services. The conclude that: 1) There is a need to assess - rather than assume - the need for a subsidy. A key test of affordability, and thus of the need for a subsidy, is to compare the cost of the service, with some measure of household willingness to pay. 2) The initial assessment must consider the affordability of connection costs as well as the affordability of the service itself. Connection costs may be prohibitive for poor households with no credit, suggesting a need to focus subsidies on providing access, rather than ongoing water consumption. 3) A key issue in designing a direct subsidy scheme is its targeting properties. Poverty is a complex phenomenon, and difficult to measure. Eligibility must therefore be based on easily measurable proxy variables, and good proxies are hard to find. In choosing eligibility criteria for a subsidy, it is essential to verify what proportion of the target group fails to meet the criteria (errors of exclusion) and what proportion of non-target groups is inadvertently eligible for the benefits (errors of inclusion). 4) administrative costs are roughly the same no matter what the level of individual subsidies, so a scheme that pays beneficiaries very little, will tend not to be cost-effective. It is important to determine what proportion of total program costs will be absorbed by administrative expenses. 5) Subsidies should not cover the full cost of the service, and should be contingent on beneficiaries paying their share of the bill. Subsidies for consumption above a minimum subsistence level, should be avoided. Subsidies should be provided long enough before eligibility is reassessed to avoid "poverty trap" problems. 6) The utility or concessionaire can be helpful in identifying eligible candidates, because of its superior information on the payment histories of customers. It will also have an incentive to do so, since it has an interest in improving poor payment records. Thought should therefore be given at the design stage to the role of the service provider in the implementation of the subsidy scheme. 7) The administrative agency's responsibilities, the sources of funding, and the general principles guiding the subsidy system should have a clear legal basis, backed by regulations governing administrative procedures. 8) To reduce administrative costs, and avoid duplication of effort, it would be desirable for a single set of institutional arrangements to be used to determine eligibility for all welfare, and subsidy programs in a given jurisdiction, whether sub-national, or national. 2015-03-11T14:53:39Z 2015-03-11T14:53:39Z 2000-05 http://hdl.handle.net/10986/21582 en_US Policy Research Working Paper;No. 2344 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Latin America & Caribbean Panama |