Over one billion people in the world lack access to clean water and more than twice that many lack access to basic sanitation. (1) Inadequate water and sanitation services, the second most common cause underlying medical conditions that lead to child mortality, impose considerable illness and coping costs on households in developing countries. These costs fall disproportionately on the poor, women and children. One of the Millennium Development Goals (MDGs) is to halve the number of people in the world who live without access to adequate water and sanitation services. (2,3) Reaching this goal would reduce coping costs, illness costs (including those generated by malnutrition), and therefore poverty as well. However, without clear empirical economic inputs into the planning and evaluation of interventions for improving water and sanitation services, the MDGs will be difficult to attain.
While epidemiological studies of the benefits of water and sanitation interventions have shown that diarrhoea can be reduced by 30-50%, (4) these studies have had two limitations. First, they have not estimated the economic benefits of improving water and sanitation, despite the fact that such estimates are needed to properly allocate investments among different health interventions, different programmes that promote health or non-health water uses, and different sectors of the economy. Second, a recent meta-analysis and update of previous reviews found that half of them did not meet quality standards. (4) For example, they did not: (i) account for baseline diarrhoea rates and pre-intervention hygiene behaviour, (ii) establish control groups, or (iii) consider whether non-programme events or conditions might have caused the observed effects. There are very few studies on the benefits of water and sanitation policies in India.
The limited literature on economic benefits is dominated by "stated preference" studies, such as contingent valuation and conjoint methods studies, which directly measure households' "willingness to pay" for contingent (hypothetical) improvements in water and sanitation infrastructure (Table 1). (23-25) "Revealed preference" studies, on the other hand, measure economic benefits by examining actual preventive behaviours, such as treating the water. (13-19,26,27) Particular types of revealed preference studies (15,16) known as avoided or coping cost studies--thus named because they examine the prevention costs incurred to cope with poor water and sanitation--measure the savings in prevention costs resulting from improvements in water and sanitation.
While stated preference benefit estimates are comprehensive, they are vulnerable to validity threats and may overestimate true economic benefits. Savings in coping costs, on the other hand, may underestimate the true economic benefits of a given intervention because they do not capture the economic value of a lowered risk of death or of reduced pain and suffering. (28,29) We view avoided illness costs as coping costs because medical spending can lead to the prevention of severe diarrhoea and mortality. (28,30) Although an extensive literature exists on the appropriate theoretical model for evaluating the impact of environmental interventions on economic welfare, (28,29,31) no causal empirical studies have measured the economic benefits generated by water and sanitation policies. (32)
To address the knowledge gaps described above, we embedded a valuation study within a rigorous impact evaluation study and estimated the economic value of the average "treatment effect" of a community demand-driven water and sanitation programme. We employed a unique combination of propensity-score "pre-matching" and large panel data to estimate the economic impacts of a multi-dimensional environmental health programme. The results of the study are timely and relevant for new intervention planning and design efforts, including cost-benefit analyses of global and national investments in water and sanitation programmes aimed at improving child health (MDG 4) and improving sustainable access to safe drinking water and basic sanitation (MDG 7). …