On the Distributional Implications of Safe Drinking Water Standards

Dennis C. Cory and Lester Taylor

Journal of Benefit-Cost Analysis, 2017, vol. 8, issue 1, 49-90

Abstract: The provision of safe drinking water provides a dramatic example of the inherent complexity involved in incorporating environmental justice (EJ) considerations into the implementation and enforcement of new environmental standards. To promote substantive EJ, implementation policy must be concerned with the net risk reduction of new and revised regulations. The regulatory concern is that higher water bills for low-income customers of small public water systems may result in less disposable income for other health-related goods and services. In the net, this trade-off may be welfare decreasing, not increasing. Advocates of Health–Health Analysis have argued that the reduction in health-related spending creates a problem for traditional benefit-cost analysis since the long-run health implications of this reduction are not considered. The results of this investigation tend to support this contention. An evaluation of the internal structure of consumption expenditures reveals that low-expenditure households can be expected to react to an increase in the relative price of housing-related goods and services due to a water-rate hike by reducing both housing and health-related expenditures. That is, the representative low-expenditure household re-establishes equilibrium by not only decreasing housing-related spending, but also by decreasing spending on health-related expenditures in a modest but significant way. These results reflect the fact that expenditures on housing are a major proportion of overall household spending, and that accommodating drinking water surcharges exacerbates both health and food security concerns for low-expenditures households.

Date: 2017
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