Post-2015 Consensus: Water and Sanitation Perspective, Whittington
Guy Hutton’s assessment paper is part of a series of publications from the WHO and World Bank which suggest that the benefits of water and sanitation interventions in developing countries are an order of magnitude or more higher than the costs of improved services. However, I challenge this finding on a number of grounds, particularly related to the assumptions made in the economic analysis.
The benefit-cost analysis rests on two assumptions, that each person’s well-being is to count, and count according to their own valuation, and that this is also the valuation placed on the change by society. The challenge is to learn about individuals’ preferences and measure the strength of these in monetary terms, either via the willingness to pay (WTP) for the outcome or the willingness to accept (WTA) compensation to forego the change.
Some experts are reluctant to measure benefits in terms of expressed preferences because they believe that people do not fully understand either the benefit or the causal relationship between hygiene and health. They are thus inclined to substitute their own assessment of the benefits into the benefit-cost calculation, which creates a challenge for BCA. In simple terms, if the benefit-cost ratio of a WASH intervention is 10:1, or even 20:1 as suggested in the Assessment paper, why don’t individuals rush to adopt these interventions?
The reasonableness of the benefit estimate depends largely on the accuracy of the estimates of time saving, which is what delivers the greatest benefit. Consider one of the sources of time savings – not walking to an open defecation site. If we assume a rural household of two adults and three children, the monthly benefits estimated in the Assessment paper would be about US$5 per month, but would everyone actually change their behaviour? In practice, in rural India, there is evidence that many people prefer to practise open defecation, which means that the benefit in the assessment paper must be considered highly speculative and subject to a high level of uncertainty.
A similar argument applies to the benefits of avoided mortality. The human capital approach has no theoretical justification; a willingness to pay figure would give a much lower benefit, particularly in poor communities, but some experts are uncomfortable with this. The substitution of expert judgement gives the appearance of greater certainty in the benefit estimates and, in many situations, inflates the economic benefits.
There are other concerns. It seems unlikely, for example, that the usage of new WASH facilities would actually be 100%. It is also assumed that the costs of water and sanitation interventions vary directly with GDP, whereas many of the components involving materials or skilled services do not. I also have concerns that, in the baseline case, the costs may have been discounted at 8%, and the benefits at only 3%.
Although the author does a sensitivity analysis for individual factors, this does not give an accurate picture of the overall uncertainty. For example, four key parameters are needed to estimate the benefits of mortality reduction, but none is known with much certainty for a specific location where the new WASH intervention is to occur. The final result depends on the product of four uncertain parameters.
To summarize, I am not arguing in this review of the assessment paper that WASH interventions will fail a cost-benefit test. In fact, I believe that carefully done cost-benefit analyses will show that many WASH interventions will be economically attractive investments. But the analysis needs to be done.