The Effects of water pricing on domestic water demand in Dhaka, Bangladesh

Abstract

Due to climate change, Dhaka city experiences acute water scarcity during annual droughts from March to June. Despite the relatively low uniform volumetric tariff compared to other Asian cities, the city's groundwater supply is substantially subsidized, resulting in excessive usage, water pollution, and depletion of groundwater resources. This study conducts a quasiexperiment using the difference in differences (DID) model to find the effect of water price increases on domestic household water consumption. Using 19 months of water billing panel data from respective municipalities and considering meteorological and COVID-19 factors as controlled variables, this study finds that a 1 BDT rise in water price leads to a 6103-liter increase in average monthly water consumption of domestic households in Dhaka city. Additionally, we find an insignificant impact of temperature and rainfall on water consumption with a minimal effect of COVID-19 shock. As a policy implication, Dhaka WASA should consider increasing water demand when implementing new tariffs. Price adjustments should be made during the winter season instead of April to July each year, as this could help manage demand during drought periods. It is necessary to thoroughly assess the current tariff system to understand how domestic customers behave when prices increase or a new tariff system is being developed in megacities.