Water, Spillovers, and Free Riding: Provision of Local Public Goods in a Spatial Network

Abstract

In many low-income countries, local public goods are provided by non-governmental organizations and local communities, rather than by government. In rural Tanzania, more than 500 organizations install different technologies of water pumps which local communities are then responsible for maintaining. One third of pumps are non-functional, despite low access to clean water. I show evidence that communities free ride on their neighbors' pump maintenance investments, but also benefit from spillovers that reduce the cost of maintaining their own pump. When pump maintenance spillovers are large, maintenance decisions are strategic complements, but when spillovers are small, free riding effects dominate and maintenance decisions are strategic substitutes. I develop and estimate a spatial network model of communities' pump maintenance decisions to quantify the importance of free riding and maintenance spillovers on pump functionality and child outcomes, and to estimate the effects of two policies that have been proposed in Tanzania. The model estimates that: (i) water collection fees mitigate free riding -- if adopted universally, pump functionality rates would increase by 11 percentage points; (ii) pump technology standardization across communities reduces maintenance costs -- full coordination by installing organizations would increase pump functionality by 6 percentage points; (iii) increased pump functionality improves child outcomes -- a 10 percentage point increase in functionality increases the child survival rate by 0.9 percentage points and school attendance by 1.5 percentage points.