Economies of scale and the equity-efficiency trade-off: Evidence from a piped water network in rural Bangladesh

Authors: Md. Ahasan Habib, Anna Tompsett

Submitted to arXiv on 05 Nov. 2026
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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    Abstract

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  2. Very close Same question Cited by this paper
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    Abstract

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  3. Close Broader context
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    Abstract

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  4. Close Same method, another problem Cited by this paper
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    James Berry, G. Fischer, R. Guiteras · 2020 · Journal of Political Economy · cited 179 times · Not summarized yet

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    Abstract

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  5. Close* Review Cited by this paper
    Willingness to pay for clean water in less developed countries: systematic review of experimental evidence
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    The systematic review synthesizes experimental evidence on willingness to pay for clean water, a body of evidence this paper draws on.

  6. Close Broader context
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  7. Close Review
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    C. Pham, Kim Thao Nguyen, Viet Hoa Thi Nguyen · 2026 · Water Economics and Policy · Not summarized yet

    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…

  8. Close* Groundwork for this paper Cited by this paper
    Equity and Efficiency in Public Sector Pricing: The Optimal Two-Part Tariff
    M. 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

  1. Related Broader context Used in depth by this paper
    Getting essential health products to their end users: Subsidize, but how much?
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    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.

  2. Related* Groundwork for this paper
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    The cited Zambia field experiment examines whether higher prices stimulate product use, informing this paper’s concern with price sensitivity and uptake.

  3. Related* Groundwork for this paper
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    D. 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.

  4. Related* Groundwork for this paper
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    P. 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.

  5. Related* Groundwork for this paper
    Spring Cleaning: Rural Water Impacts, Valuation and Property Rights Institutions
    M. 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.