Estimating the demand for tap water quality: avertive expenditures on substitutes for hardness and aesthetic quality

This paper uses avertive expenditures to estimate the demand for qualitative aspects of tap water supply. We focus on two characteristics that are of importance for water consumers: water hardness and aesthetic quality in terms of taste, smell and appearance. To elicit expenditures on substitute products, we survey more than 4,500 households in England and Wales. For water hardness, around 14% of households employ at least one water softener device, with mean and median yearly expenditure around £95 and £50 respectively. Substitutes for the aesthetic quality of tap water mainly include bottled water, water filter devices, or adding squash or cordial before drinking. Overall 39% of respondents report at least one such behaviour, with mean and median yearly expenditure around £92 and £60 respectively. These are substantial amounts given a yearly average household bill of £186 for water services. Matching household data to highly disaggregated records on regional water hardness, our econometric analysis suggests that a 10% reduction in water hardness is associated with a £1.50 reduction in avertive expenditures. We also exploit geographic variation in the aesthetic characteristics of tap water, and correlate self-reported quality ratings to expenditures. We find that a one-fifth increase in the rating of water taste is associated with a £19 reduction in yearly expenditures.