Syndicate content

Add new comment

Submitted by Shanta on

Imran: Thanks for your comment. By "private goods," I was referring to goods and services where there was no clear-cut market failure (public goods or externalities) associated with them. Sanitation, for example, does have an externality (people without latrines still benefit from their neighbor's having a latrine, as I described in my earlier post). By contrast, with water, there is no externality (I don't benefit from your drinking a glass of water), nor is it a public good in the sense of being non-rival and non-excludable (when you consume water, I can't consume that same glass of water). There is therefore a clear rationale for government's subsidizing of sanitation. With water, the only rationale is that of equity--we would like poor people to be able to get access to water. But, as I showed, subsidizing water does not guarantee that poor people will be able to get it at the subsidized rate because the non-poor, who can also get the subsidized water, are able to capture it through their political clout. That is why it's better to give poor people cash, and let them buy water at market prices, the same prices that the non-poor pay. By referring to water as a private good, I was not "dismissing it." Rather, I was attempting to identify the precise rationale for public financing of the good and service, something that is critical when governments have limited resources. Shanta