What is the effect of short-term subsidies on demand for potable water

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In rural Bihar, roughly 86 million households source their drinking and cooking water primarily from shallow well hand pumps that are vulnerable to biological and chemical contamination (Brouns et al. 2013; Mishra et al. 2009; Das et al. 2013). Furthermore, both the knowledge and practice of adequate water purification techniques remain dangerously low (Das et al. 2013). To address this gap in clean water use, a growing number of small-scale independent firms now provide delivery of fully treated bottled water for household consumption. However, the willingness to pay for clean water remains low and the use of such services as a long-term solution is uncertain.

Price subsidies are a common tool used in low-income countries to increase the short-run adoption of essential health products like clean water. However, evidence of the impact of subsidies on future demand (once the subsidy has run out) is both limited and mixed. On the one hand, short-term subsidies could induce anchoring effects, where recipients reference the low price they previously faced, undervaluing the product on future offer. Alternatively, subsidies might lead to higher short-term take-up and increase the likelihood of positive learning, wherein recipients experience product benefits, leading to higher valuation, purchase and use later on.

To address this significant gap in the literature, this study tests whether the provision of short-term subsidies for a novel potable water delivery service leads to price anchoring or positive learning in rural Bihar. To test for these effects, the researchers partnered with a local NGO, Sanitation Health Rights in India (SHRI) who provides clean water delivery to low-income households that rely on untreated drinking water sources.

To examine the impact of short-term subsidies on future demand for clean water, the researchers will select 526 eligible households who primarily use untreated shallow groundwater for their drinking and cooking. All households will be interviewed and receive health information, marketing messages, free taste tests and a visual demonstration of the high iron content of their drinking water by NGO representatives from the local community. Respondents will then be randomly allocated to receive either a regular- or reduced-price water delivery coupon that expires after 30 water deliveries.

After a follow-up interview, the researchers will compare treated water consumption between the two groups to determine whether families who received short-term subsidies are more or less likely to purchase water than those who did not.

Results from this study will have important implications for small firms who seek to increase access to safe drinking water as well as local government ministries as they explore new market-based solutions to improving access to clean water. This research also has implications for other sectors and settings where the regular purchase of staple goods is vital to the achievement and maintenance of improved health outcomes.