Economies of scale and the equity-efficiency trade-off: Evidence from a piped water network in rural Bangladesh
Authors: Md. Ahasan Habib, Anna Tompsett
Abstract
Policymakers who set prices for public infrastructure often anticipate an equity-efficiency trade-off: while higher prices could increase revenues from fee-paying users, helping to offset costs, they may reduce take-up among the poor. But this trade-off is fundamentally altered in the presence of economies of scale, which are common in infrastructure networks. We elicit willingness to pay for a household-level piped drinking water connection in rural Bangladesh, where truthful revelation of preferences is incentivized by the opportunity to connect to a new pipeline network that we construct, and we use project cost data to measure economies of scale. Combining the two, we show that the cost-effectiveness-maximizing price---that which minimizes the cost per connected household---is zero. Economies of scale strongly dominate revenues raised by user fees. More generally, the two conditions needed for a zero price to maximize cost-effectiveness are important economies of scale and high sensitivity of demand to prices near zero, which is well documented across developing countries. Since a zero price naturally maximizes equity, we conclude that economies of scale can eliminate the equity-efficiency trade-off.
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Closest papers
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Abstract
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The study experimentally measures demand and price responses for clean water in rural India, as this paper measures willingness to pay for piped connections in rural Bangladesh.
Abstract
Over 2 billion people lack clean drinking water. Existing solutions face high costs (piped water) or low demand (point-of-use chlorine). Using a 60,000 household cluster-randomized experiment, we test an alternative approach: decentralized treatment and home delivery of clean water to the rural poor. At low prices, take-up exceeds 90 percent, sustained throughout the experiment. High prices reduce take-up but are privately profitable. We experimentally recover revealed-preference measures of valuation. Willingness-to-pay is several times higher than prior indirect estimates; willingness-to-accept is larger and exceeds marginal cost. Self-reported health measures improve accordingly. On a cos…
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The study examines how water prices signal investment in infrastructure, whereas this paper evaluates how connection prices affect household uptake and cost-effectiveness.
Abstract
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Eliciting and Utilizing Willingness to Pay: Evidence from Field Trials in Northern GhanaJames Berry, G. Fischer, R. Guiteras · 2020 · Journal of Political Economy · cited 179 times · Not summarized yet
The study uses the Becker–DeGroot–Marschak mechanism to elicit clean-water willingness to pay in Ghana, as this paper does for piped connections in Bangladesh.
Abstract
We use the Becker-DeGroot-Marschak (BDM) mechanism to estimate willingness to pay (WTP) for and heterogeneous impacts of clean water technology through a field experiment in Ghana. Although WTP is low relative to cost, demand is inelastic at low prices. Short-run treatment effects are positive throughout the WTP distribution. After 1 year, use and benefits are both increasing in WTP, with negative effects on low-WTP households. Combining estimated treatment effects with households’ WTP implies valuations of health benefits much smaller than typically used by policy makers. We explore differences between BDM and take-it-or-leave-it valuations and make recommendations for implementing BDM in t…
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Willingness to pay for clean water in less developed countries: systematic review of experimental evidenceC. Null, M. Kremer, E. Miguel et al. · 2012 · cited 38 times · Not summarized yet
The systematic review synthesizes experimental evidence on willingness to pay for clean water, a body of evidence this paper draws on.
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Water Rights Trading and Sustainable Infrastructure Financing: Evidence from ChinaJun-Jie Zhang, Chao-Wang Zou · 2026 · Sustainability · Not summarized yet
The study tests whether water-rights trading mobilizes infrastructure finance in China, whereas this paper studies household connection fees and network economies of scale.
Abstract
Water infrastructure underpins progress toward Sustainable Development Goal 6 and SDG 9, yet financing shortfalls constrain investment in many developing economies. This paper examines whether market-oriented water allocation reform—specifically water rights trading (WRT)—can mobilize sustainable infrastructure financing. Exploiting China’s 2014 provincial WRT pilot as a quasi-natural experiment, we estimate difference-in-differences models using province-level panel data from 2010 to 2023 (an effective sample of 434 province–year observations across 31 provinces), supplemented by event-study analysis, mediation modeling, and heterogeneity tests. WRT raises per capita water infrastructure in…
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The meta-analysis synthesizes household willingness-to-pay estimates for water-supply improvements, a broader valuation topic related to this paper’s demand estimates.
Abstract
Monetary willingness to pay (WTP) is widely used to value improvements in water services, yet comparisons across populations are complicated because observed WTP may reflect both households' ability to pay and the magnitude of the service improvement they stand to gain. This study examines these two mechanisms through a systematic review and dependency-aware meta-analysis of 68 WTP estimates from 42 studies published since 2009. All estimates are standardized to monthly household WTP in real 2024 PPP-adjusted USD and analysed using a three-level restricted maximum likelihood (REML) meta-regression that accounts for effect-specific sampling uncertainty, dependence among estimates from the sam…
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Equity and Efficiency in Public Sector Pricing: The Optimal Two-Part TariffM. Feldstein · 1972 · Quarterly Journal of Economics · cited 229 times · Not summarized yet
The cited work on equity and efficiency in public-sector pricing provides a pricing framework relevant to this paper’s analysis of fees and equitable access.
Prior work it builds on
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Getting essential health products to their end users: Subsidize, but how much?P. Dupas · 2014 · Science · cited 95 times · Not summarized yet
The article discusses subsidies for essential products, including point-of-use water treatment, while this paper examines whether zero-priced piped connections improve cost-effectiveness.
Abstract
Although coverage rates and health outcomes are improving, many poor people around the world still do not benefit from essential health products. An estimated two-thirds of child deaths could be prevented with increased coverage of products such as vaccines, point-of-use water treatment, iron fortification, and insecticide-treated bednets. What limits the flow of products from the producer’s laboratory bench to the end users, and what can be done about it? Recent empirical research suggests a crucial role for heavy subsidies.
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Can Higher Prices Stimulate Product Use? Evidence from a Field Experiment in ZambiaJames Berry, Jesse M. Shapiro, Keesler Welch et al. · 2010 · The American Economic Review · cited 520 times · Not summarized yet
The cited Zambia field experiment examines whether higher prices stimulate product use, informing this paper’s concern with price sensitivity and uptake.
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Decision costs and price sensitivity: Field experimental evidence from IndiaD. Spears · 2014 · Journal of Economic Behavior and Organization · cited 27 times · Not summarized yet
The cited India field experiment studies decision costs and price sensitivity, relevant to this paper’s analysis of how prices affect connection demand.
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Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention ExperimentP. Dupas, Keesler Welch, Shammi Quddus · 2008 · Quarterly Journal of Economics · cited 785 times · Not summarized yet
The cited malaria-prevention experiment compares free distribution with cost-sharing, a pricing question related to this paper’s comparison of free and fee-based connections.
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Spring Cleaning: Rural Water Impacts, Valuation and Property Rights InstitutionsM. Kremer, J. Leino, E. Miguel et al. · 2009 · National Bureau of Economic Research · cited 387 times · Not summarized yet
The cited study examines rural water impacts, valuation, and property-rights institutions, providing related evidence on rural water access and household valuation.
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Updated on 9 November 2026.