This is the second installment of a series examining the economics of clean water. The first installment looked at whether water filters are economic in a situation where there is an alternative source of clean water. The answer obviously depends on the cost of the filters and the market value of clean water, but in the case of Haiti, the answer was a resounding “yes”! (See blog post: The Economics of Clean Water)
In part 2, I want to offer some analysis which sheds light on the situation where there are no reasonable alternative markets for clean water. In other words, an individual has no choice but to drink water from a contaminated source. I have seen this situation many times in Haiti and my heart goes out to the people who have the untenable decision of either drinking contaminated water or dying of thirst. Setting aside the obvious answer from a justice point of view, that being that society should provide clean water solutions in situations like this, let’s look at the economics.
When people drink contaminated water, they fall ill or they die. When they are ill they cannot work which means that they and society are less productive and therefore less wealthy than if the person was healthy and working. Average annual income in Haiti is about $1,400 per year or about $3.84 per day. When that person is sick, they lose the opportunity to make $3.84. Now, if they are sick for 30 days per year over an entire 20 year work career, they would lose the present value equivalent of $1,400.
Installing filters, providing hygiene education and following up on the program cost about $300 per household or, let’s say, $100 per person. So, by providing access to clean drinking water, each recipient is better off by about $1,300 over the course of their lifetime ($1,400 - $100). Now that may not sound like much, but it represents a rate of return of over 130%. Furthermore, if we assume that 50% of Haiti does not have access to clean water and there are about 6 million people in the country, the cost of providing clean water would be $600 million but the total increase in wealth for the country, using these assumptions, would be $3.3 billion. Now those are some numbers that should make us all work a little harder.