Volumetric pricing in rural Central America: Drivers of adoption and potential effects on water delivery

Abstract

In rural and peri‑urban areas of Central America, community water organizations (CWOs) provide water to 60 % of the population, thereby playing a pivotal role in achieving multiple Sustainable Development Goals. However, the underlying environmental, climatic, and institutional factors explaining the adoption of volumetric pricing from these water providers and its effect on service delivery are typically overlooked in the literature. In this paper, we address two issues. First, we test whether volumetric pricing affects the service water delivery in a rural setting, drawing on a random sample of cross-sectional data on 154 CWOs in Costa Rica, Guatemala, and Nicaragua. We find that volumetric pricing is associated with substantially more successful water delivery, even when conditioned on institutional capacity, environmental attributes, climatic conditions, and country-fixed effects. Despite this strong relationship, volumetric pricing has yet to be widely adopted, particularly in Nicaragua and Guatemala. Therefore, as the second goal, we try to identify the institutional and socio-ecological conditions in which volumetric pricing is adopted. We find that volumetric pricing is more likely used when communities (1) experience adverse environmental and climatic conditions associated with water scarcity and (2) have greater institutional capacity. Our results highlight the importance of examining the social-ecological system to assess the performance and adoption of water management institutions