Getting the Water Prices Right Using an Incentive-based Approach: An Application of a Choice Experiment in Khorezm, Uzbekistan

Abstract

This article explores whether water pricing can be implemented by the bundling of water services with additional non-water-related community services in order to increase farmers’ willingness to pay (WTP) for water. Using a choice experiment in the Khorezm region of Uzbekistan, we examine whether part of the water fees that are collected by a Water User Association could be used to provide socio-economic benefits to its members. This could then motivate users to pay higher water fees. Such services include provision of microcredit, maintenance of health centers and schools, and community training programs, in addition to maintenance of irrigation infrastructure and drainage systems. The results indicate that bundling different services yielding individual and communal benefits, respectively, can increase the farmer’s WTP for water compared with the scenarios without bundling. Our results also identify heterogeneous preferences among farmers: rice farmers are likely to pay more for water in general, whereas farmers earning less income have a stronger preference for health services.