_Designing Pro-poor Water and Sewer Concessions_ _Kristin Komives_ sanitation expenditures low by continuing to use public standposts or riverbeds. Other households will be very willing to pay more in order to obtain an in-house connection. The important point from a contract design perspective is that Aguas del Illimani does not have the flexibility to alter its product offerings if demand for high quality and highly reliable in-house connections proves to be low in some neighborhoods.

The output standards in the Aguas del Iilimani contract are a deliberate decision: the Bolivian government wants the concessionaire to meet the government's national objectives for the water and sanitation sector: universal coverage of in-house connections. The appeal of this vision is obvious, but is important to realize that the requirement to provide a single uniform type and quality of service could hinder service improvement in low-income areas in two ways. First, if households do not want to pay for the in-house service Aguas del Illimani is authorized to provide, it may simply not be possible to achieve the Bolivian government's universal service goals (at least without increasing subsidies to households). Second, if some households in a neighborhood want connections and others do not, the density of connections will drop and the Aguas del Illimani's costs will rise, making cost recovery more difficult.

In the Aguas del Illimani case, the output standards require that the concessionaire provide a high-cost level of service. A concession contract could also require a concessionaire to provide only a low-tech solution, such as community wells or collective pit latrines. In this case, households would not have to decide to connect to the system, but they would decide whether or not to pay to use these collective services. 28 If demand for these low-tech solutions were weak, then the concessionaire would have cost recovery problems, again jeopardizing the fundamental goal of improving services in low-income areas. The important point is that any requirement that concessionaires provide only a single level and quality of service can create problems if demand for that level of service is not high enough.

To avoid these pitfalls of output standards, concession contracts and sector regulations often include exclusivity provisions designed to ensure that households accept a single level of service from a single service provider (reduce the scope of household choice). Exclusivity reduces market risk, but it presents its own dangers for poor households; these problems are discussed in more detail below.

_Input standards: materials, design, and procedures_ Input standards dictate how concessionaires must achieve the output standards. For example, a concessionaire may be required not only to meet water quality standards, but also to do so by using a specific chemical and/or a specific filtration process.

_Materials and design standards_ SAMAPA, like all other public utilities in Bolivia, was subject to Bolivian standards for materials and system design in the water and sanitation sector. In designing the La Paz concession, the government intended to offer the concessionaire slightly more flexibility than SAMAPA had in this area. The Aguas del Illimani contract states only that

> 28 There is ample evidence from willingness to pay studies in developing countries that some households in some communities choose not to use low-tech systems, and instead invest in private solutions (e.g. private wells or standpost) that provide a higher level of service.

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