Intertemporal Preferences of Potable Water Supply Consumers

Abstract

This research explores potable water consumers’ willingness to pay to fund up-front investments in their potable water supply services (PWSSs), which will reduce rates in the longer term. An online survey of 1,970 New Zealand PWSS consumers was carried out in 2011 to identify factors that influence individual discount rates (IDRs) related to PWSS investments—a first of its kind—using dichotomous choice questions. Constrained latent class models (LCMs)—an established technique—were used to test the presence of a class of respondents that is unwilling to invest—a phenomenon that has not yet been tested for PWSS consumers. Confirming PWSS consumers’ IDRs will help water suppliers understand the factors more conducive to consumer support of long-term PWSS investments. The research showed that consumers have an 82% chance of having high discount rates of 45%–55%, and an 18% chance of always being likely to support initial payment increases in the interest of future savings. Decision makers should be aware of high IDRs, but they should recognize that there is a class of consumers that strongly supports long-term investments.