5.4 Economic analysis of HWTS

Well, we've seen the consistent and effective use of HWTS can lead to sizable health gains, at least where drinking water is contaminated and represents a significant exposure pathway,but there are lots of things that could be done that also reduce disease burden things like promoting nutrition or vaccines, for example and when policy makers have to make decisions about which types of interventions to invest in, they invariably want to know, how much does it cost. And there are many different types of financial and economic analyses that can be made in connection with water and sanitation interventions. And today we'll take a look briefly at a few of these.

One type of analysis is called a cost benefit analysis, and here the costs of the intervention are added up. And are weighed against the benefits resulting from the intervention. How many dollars of investment does it take to get how many dollars of benefits?

This is a money for money kind of analysis. A problem with cost benefit analysis is that the benefits can be difficult to quantify. A simpler analysis is to only look at the costs and consider which among several different approaches is the cheapest to achieve a certain desired outcome.

This is called cost effectiveness analysis and in HWTS, a common measure of the desired outcome is the amount of diarrheal disease prevented measured in deaths or DALYs. Either cost benefit or cost effectiveness analysis can help policy makers decide how to allocate scarce resources. I'll give a brief example of a third kind of economic analysis, which is called willingness to pay or contingent valuation studies.

Like the name suggests, this kind of analysis seeks to find out how much people would be likely to pay for a particular HWTS product or service. Which can be very useful for social businesses or profit maximizing businesses who seek to generate some revenue from HWTS. An important cost benefit analysis was done by Guy Hutton and colleagues, and they looked at five possible WASH interventions.

Meeting the water MDG target, meeting both the water and sanitation MDG targets, universal access to basic water and sanitation, universal basic access along with disinfection using HWTS and finally, a higher level of service regulated piped drinking water and sewage. The authors calculated the costs of each of these interventions in different geographic regions, and also the benefits and the benefits here included the reduction in diarrheal disease both in terms of incidence and mortality, but also several economic benefits. Money saved by not having to manage diarrheal disease and this could be money saved by the individual household or by the healthcare sector also increased productivity resulting from improved health and finally, time savings from not having to travel long distances to access water and sanitation facilities.

The authors found that WASH interventions were highly cost beneficial, that the benefit-cost ratio was above one in all cases and in some cases, was very much larger. Benefit-cost ratios tended to be higher in wealthy countries here the letter B means a region with low mortality, and C, D, and E are increasingly higher mortality. Benefit-cost ratios are higher in wealthier countries in part because they are a big time savings and these are valued more highly in wealthier countries.

The figure shows that this one in the middle here, the purple one achieving universal basic access with HWTS has a benefit cost ratio of at least five in all settings even the highest mortality ones, and greater than ten in most settings. In the higher mortality settings, the benefit-cost ratio is just about the same of the other two interventions that had the highest ratios that's meeting both MDG targets and achieving universal basic access. Meeting the water MDG alone doesn't yield as large health benefits and achieving universal access to regulated services does have big health benefits, but is very expensive, so it has a lower benefit to cost ratio.

Well, how about cost effectiveness analysis? This is a little bit easier and lends itself more to disaggregated analysis like comparing one HWTS option against another. Well, the WHO's 2002 World Health Report included a similar analysis to the Hutton Cost Benefit Analysis and concluded that the intervention which is consistently the most cost-effective across regions and would be classified as very cost effective in all areas where it was evaluated, was the provision of disinfection capacity at point of use.

On purely cost-effectiveness grounds, it would be the first choice where resources are scarce and as you can imagine, this report gave a major boost to HWTS efforts. Several years later, Tom Clasen at the London School of Hygiene and Tropical Medicine did another cost effectiveness analysis, this time looking at differences between different HWTS options. He used information from various program implementers to calculate the annual cost of different HWTS options per person served, and then compare this against the cost of conventional water interventions.

Which in this case was considered as installing and maintaining wells, boreholes and communal tap stands in Asia. He found that the annual cost of implementing chlorination or SODIS was under $0. 70 per year, $0.

66 and $0. 63. And that that was cost less than source improvements which were around under $2.

00 or $2. 6 per year in Asia. Filtration and flocculation disinfection were more expensive than the interventions at the sources,but you have to recall that improved sources like these don't necessarily translate into safe drinking water at the source of consumption.

The study also calculated the total cost of implementing these interventions for 50% of the population in the WHO Western Pacific Region and found that for chlorination and SODIS, the benefits to the health care sector were greater than the costs of implementation and this is actually a limited cost benefit analysis considering only the benefits to the health sector, and not other benefits like increased productivity from improved health or time savings. The study also reported the annual cost to prevent one DALY and in all cases, this cost was low. One rule of thumb is that the cost to avert one DALY, if that is less than the per capita gross domestic product, it's a very cost effective investment.

So, costs as low as $50, or $100, or under $200 per DALY averted are very good investments, and even the more expensive options fall within a cost-effective range. Thinking back on the different implementation strategies, nearly all HWTS interventions aim to recover at least some costs from the users. Public health oriented interventions may struggle here, because they may target populations that have very little ability to pay and face multiple competing demands for their limited resources.

There's a whole field of study called contingent valuation that aims to find out how much people are likely to be willing to pay for a product or service especially one that is hypothetical or doesn't yet exist,like health impact studies. It's easy to do a primitive willingness to pay study, but the results aren't of worth very much. A properly designed study is complex and sophisticated, and so far there are not many good examples for household water treatment.

However, one significant and sophisticated study was done by Jill Luoto and colleagues in Bangladesh. In this study, 600 households were given free two month trials of each of four HWTS options in rotation, following a random sequence. After the trial, people participated in a bidding auction where they could express the maximum amount that they would pay for a bottle of Aqua WaterGuard liquid chlorine good for about two weeks of use strips of Aquatabs chlorine tablets good for ten days,five sachet of PuR enough for five days, or one Crystal PuR ceramic candle filter, which is similar to the Tulip filter that we saw in week two, with an expected lifetime of a year or more.

The willingness to pay in this study was found to be extremely low. A large number of households said that they wouldn't willing to pay anything at all for these products nearly half of households were willing to pay something like a market rate for the Aquatabs and about a third would pay a market rate for WaterGuard,but only 1% of households were willing to pay the estimated market price of about $7. 25 for the filter and no one was willing to pay the market price for PuR.

Now, this low unwillingness to pay isn't simply due to lack of demand or concern for safe water less than a third of people in the study, did consider their drinking water safe. One reason could be the, the poverty in the study area of urban Dhaka slums per capita household incomes were well below $2 per capita per day purchasing power parenting. Another reason could be general lack of experience with paying for water or with familiarity with the taste and odor of chlorine in Bangladesh.

So, this is a good study to look at for methods and to serve as a reminder that people may not be willing to invest their own money in HWTS options, even when they consider that their drinking water is unsafe. So, that's a very brief run through of some of the economic tools that can be used to evaluate HWTS interventions. We saw that HWTS does fairly well in a cost benefit analysis with benefit cost ratios well above five, and comparable to the other water and sanitation interventions having the highest benefit to cost ratios.

In two cost effectiveness analyses, we saw that HWTS can be extremely cost effective in terms of the cost to avert DALYs, and that SODIS and chlorination are particularly cost-effective options due to their low cost. Finally, we saw that in at least one setting, willingness to pay for different HWTS options can be quite low even when the water quality is perceived as being unsafe.