Assessing the willingness to pay for maintained and improved water supplies in Mexico City

Mexico City suffers from increasing problems of poor water supply. We show that service conditions are highly heterogeneous across three large areas of the city, and that these conditions are significantly associated with household income in those areas. A contingent valuation survey is used to investigate households' ability and willingness to pay (WTP) for maintained and improved levels of service. In accordance with prior expectation we observe that poorer households are primarily concerned with securing reliable services, while wealthier households, which already enjoy better services, are WTP higher amounts to avoid service deterioration than for improvements. We demonstrate how WTP results can be used to create equity based policy of water tariffs reflecting income distribution. The aggregated WTP amounts show that the authorities could collect sufficient resources for both service modernisation and could also reduce existing subsidies by about 70%. Remaining subsidies could be targeted on households with lower income levels.