What Consumers Value Regarding Water Supply Disruptions: A Discrete Choice Analysis?

In Australia, a series of reforms in the water industry has created a demand from the industry and regulators for objective methodologies to evaluate incremental changes in the customer service standards. In this paper, we explore the use of choice modelling for estimating implicit prices associated with urban water supply attributes. Results from Multinomial Logit (MNL) Models show that increase in annual water bill (bid amount) and the frequency of future interruptions were the most important attributes in the models of choice. Implicit price confidence intervals based on a random parameters logit (RPL) model suggest that people are willing to pay positive amounts to achieve a water supply that is less frequently interrupted. Other attributes, such as the provision of alternative water supplies during an interruption and notification of the interruption, were found to be unimportant to respondents. The range of bid amounts significantly (p<0.01) affected the price sensitivity. Choice modelling proved to be a useful technique and provided the industry and regulators with additional information for standard setting in Australia. Finally, the RPL and MNL models were useful to determine what consumers value regarding water supply disruptions. Increase to water bills and frequency of future interruptions are consistently valued. Acknowledgements: This study was funded through the Water Services Association of Australia and the Urban Water Program of the CSIRO. A Technical Reference Group provided advice throughout the development of the questionnaire consisting of Claude Piccinin (WSAA), Meredith Blais (Water Corporation), Mike Bormann (SA Water), David Heeps (City West Water), Gavin Morrison (Sydney Water), Naomi Roseth (Sydney Water), Xavier Smith (City West Water), Angela Tsoukatos (Sydney Water) and Kevin Young (Hunter Water). Research assistance was provided by (in reverse alphabetical order) Marianne Young, Sharon Rochow, Jan Mahoney, Rosemary Gabell, Ray Correll, Tim Buckland and Christine Buckland. Many thanks go to Stuart Whitten, Sarah Wheeler and David Hensher for answering questions on the fly. Any errors and omissions remain the responsibility of the authors despite all the efforts of all the aforementioned to set us on the right track.