Household location decisions with respect to water availability: Evidence of sorting equilibrium in southwest Sri Lanka

This research addresses economic questions related to how households choose where they live and the relative importance of housing prices and infrastructure availability, especially water infrastructure. These questions are addressed by analyzing the spatial distribution of income, housing prices and access to water infrastructure using an equilibrium sorting model. The sorting model defines a distribution of preferences of households or individuals in making a location choice. In this choice process, households care about specific attributes of location related to the local provision of public goods, and make location choices with regard to these attributes. Sorting models have been used extensively in public economics in the U.S. However, few studies have used sorting models to address the role of public infrastructure in enhancing the value of a house in a neighborhood; and there are practically no applications of sorting models in developing countries for any purpose.;The model is implemented using household data from three regions in Southwestern Sri Lanka. Households in the study area obtain water from three sources: public wells, private wells or a public water service provided by the local government through a water network wherein households pay a fee in exchange for a certain level of water service.;The estimation strategy follows a two-stage approach, using estimation techniques that are widely available through most statistical software. The results are used to analyze whether or not tap water network availability in a neighborhood leads to crowding out of poor households by more well-to-do households with a (possibly) higher willingness to pay for the benefits of water network availability. The key finding is that there is generally little evidence that crowding out has taken place, and therefore government targeting of poor neighborhoods for deployment of water networks is feasible. Finally, households' marginal willingness to pay (MWTP) for availability of a tap water network is computed. A comparison of these estimates with similar MWTP estimates computed using a hedonic analysis provides an indication of the degree to which hedonic analyses overstate these willingness to pay measures.