Three Essays on Water Economics

Three Essays on Water Economics Fahad Alzahrani The reliable provision of safe drinking water is one of the most important health-related programs in the United States. Since enactment of the Safe Drinking Water Act in 1974, great progress has been made in drinking water quality and regulation in the United States. Despite this progress, drinking water outbreaks continue to occur nationwide and negatively affecting the welfare of the people. In particular, rural residents suffer from drinking water quality and reliability issues due to the aging water infrastructure and the lack of funding to the small water systems serving such areas. This dissertation consists of three essays that explore how changes in water supply quality and/or reliability affect health care expenditures, residential property prices, and residential water charges. The first essay explores the relationship between episodes of contaminated drinking water and health care expenditures in the United States. The analysis relies on panel data from the 48 contiguous states from 2000 to 2011. Using the population served by public water systems that violate health-based standards of the Safe Drinking Water Act as a proxy for contaminated drinking water. spatial and non-spatial models are estimated with controls for factors that may affect per capita health care expenditures including variables that reflect air quality violations along with ability to pay plus demand for and supply of health care services. The results from a Spatial Durbin Model indicate that a 1% decrease in the percentage of population exposed to drinking water quality violations is associated with reductions in in state and regional effects equal to 0.005% ($0.32) and 0.035% ($2.26) of per capita health care expenditures, respectively. Drinking water violations have a larger impact on expenditures than air quality violations (whose effects are not statistically different from zero). However, compared to other factors, such as health status and income, the impact of these violations on health care expenditures is relatively small. Regional health care expenditure impacts from drinking water violations are found to be substantially greater than in-state impacts. Thus, a regional approach is recommended to addressing drinking water quality improvements. In the second essay, spatial and non-spatial hedonic property price models are used to examine the problem of water supply reliability due to aging infrastructure of public water systems on residential property prices. Water supply unreliability is measured by issuance of boil water notices (BNWs) linked to home sale observations (e.g. number of notices affecting the house prior to the sale). The analysis is based on 1,985 housing transactions and 350 BWNs throughout Marion County, West Virginia between 2012-2017. Important control variables include home size and age, lot size, number of bedrooms, construction quality, physical condition, and presence of house amenities (air conditioning, fireplace, and fence). Mapping and distance tools in ArcGIS are used to measure neighborhood characteristics such as school quality and distance to the nearest highway interchange. Finally, the models include fixed effects for both time and tax district. Statistically significant, negative impacts are found for BWNs from the previous year before a house sale. Depending upon how water supply unreliability is measured – in either days, BWN episodes, or presence versus absence, BWNs can depreciate housing prices between 0.57% and 18%. A quantile regression approach is used to find that BWNs have a larger impact on low-price compared to high-price houses. Based upon quantile regressions, a reduction in one day under BWN per year will increase housing values at the lower end of the housing price distribution by $2,100 to $2,700, whereas houses at the mid-range of the distribution will increase by $850 to $1,000. However, houses at the higher end of the housing price distribution (0.7 quantile and above) show no statistically significant impact from this BWNs variable. Overall, water supply unreliability has a substantial impact on the value of residential properties in Marion County where the aggregate marginal willingness to pay for a one-day reduction of BWN is equal to $4.60 million. The third essay examines the impact of access to raw water sources on residential water charges by public service districts (PSDs) in West Virginia. This analysis determines the relative value of raw water from each source. Using regression analysis, we compare residential water charges per 4,500 gallons for PSDs that utilize different raw water sources including the surface water, purchased water, or multiple sources. We examine the difference in water charges between those PSDs that use NRCS’s flood control impoundments as a water source compared to those who use other sources. Our analysis is based on data for 110 PSDs throughout the state of West Virginia. Our results show that PSDs that use multiple sources have higher residential water charges by about 29% of the average water charges compared to PSDs who utilize only one raw water source. Therefore, policies that encourage public water utilities to utilize multiple sources, such as the Source Water Protection (Senate Bill 373) passed by the West Virginia legislature in 2014, may result in higher rates. No statistically significant difference is found between water charges of PSDs that use NRCS’s flood control impoundments and those who use conventional sources. Other factors, such as providing sewer plus water service in the same time result in lower residential water charges. Conversely, larger long-term debt and greater network length result in higher residential water charges.