Valuing access to water-A spatial hedonic approach, with an application to Bangalore, India

An important infrastructure policy issue for rapidly growing cities in developing countries is how to raise fiscal revenues to finance basic services in a fair and efficient manner. This requires estimates of the potential benefits or positive welfare effects that may follow from improved infrastructure. In this paper, we take advantage ofa unique geo-referenced household survey to carry out a hedonic analysis ofhousing values that explicitly accounts for spatial spillovers. We use this to derive an estimate ofthe value ofimproved access to water in the Indian city of Bangalore. The findings suggest that by limiting the focus to individual or private benefits only, we may underestimate the overall social welfare from investing in service supply. We further demonstrate how spatially explicit policy simulations based on these estimates provide insight into the total effects oftargeted interventions.