Incentive Mechanism Design To Improve Urban Water Safety From A Stakeholder Perspective

In consequences of water resource pollution, frequent water supply accidents and out-dated treatment facilities, urban water supply safety is facing great challenge. Based on all above reasons, it is urgent to improve urban water supply safety. Urban water supply system consists of raw water collection, water purification facilities, pipe networks and secondary water supply. The complicated system is related to various stakeholders, such as water companies, consumers and government, etc. The key of incentive mechanism to improve urban water supply safety is to coordinate interest relationship of stakeholders and to encourage stakeholder participation. Most researches have focused on stakeholder participation in water resource management, few studies examined stakeholders of overall urban water supply system. This paper therefore aims to contribute to fill the gap in this field. From a stakeholder perspective, this study is trying to design incentive mechanism to improve urban water supply safety. The study discusses the role of stakeholders in urban water supply system considering the results of stakeholder analysis. The interest, influence, and relationship of stakeholders are obtained. After that, the study also analyses the strategies and interests of key stakeholders from supply-side and demand-side, respectively. The game theoretic models between municipal government and a water company are conducted. Contingent valuation method and choice experiment method are both applied to investigate consumers‘ willingness to pay to improve urban water supply safety. Finally, the framework of incentive mechanism in improving urban water supply safety is presented.Firstly, eight groups of main stakeholders are identified as: water companies, governments, consumers, polluting companies, communities, experts, media and non-governments. The findings indicate that water companies, governments, consumers and polluting companies are the most important and definitive stakeholders in urban water supply system in China. Experts and media are expectant stakeholders and context setters. Communities are latent stakeholders and NGOs are marginal stakeholders. However, stakeholders‘ interests, attitudes and influences on urban water supply safety are different. The results suggest that the involvement of stakeholders in water supply management should be carefully managed to enable efficient and effective interaction among stakeholders according to the proportionate needs of water supply systems.Secondly, the game models within key stakeholders from supply-side indicate that water price, penalty and financial funding for municipal government are effective policies to optimize key stakeholders‘ strategies, while subsidy policy is not useful. In order to achieve the policy goal that the municipal government implements fully and for water companies to upgrade actively, water price increase should be equal to or more than the maximum between the unit upgrading cost of the water company and the unit upgrading cost shared by municipal government. Und er the optimal policy condition, the optimal subsidy rate is equal to the tax rate while the optimal water price rise is equal to the unit cost of upgrading paid by water companies.Thirdly, the results of consumers‘ willingness to pay reveales that the Chinese residents are willing to pay more than current water price to improve urban water supply safety. The uncertainty adjusted mean WTP is 0.55-0.56 RMB/m3 based on contingent valuation method. Estimates from choice experiment method show that marginal WTP for improve water quality, pressure, service and interruption are 2.33 RMB/m3、0.88 RMB /m3、0.23 RMB /m3 and 0.18 RMB/m3, respectively. WTP is determined by concern on urban water supply safety, attitude to improvement programs, trusting in executive agencies, water supply information, age, income and education. Consumers with at least a child value the water supply safety improvement more. In addition, the study indicates that WTP is significantly related to respondent uncertainty. The main sources of respondent uncertainty are related to concern, attitude, trust and information about urban water supply safety.Finally, the framework of incentive mechanism in urban water supply safety improvement is conducted. The incentive mechanism is based on stakeholder involvement in urban water supply management. It concludes incentive mechanism for stakeholders on supply-side, such as dynamic water price adjustment policy, penalty policy as well as financial funding policy, and cost-sharing incentive mechanism for stakeholders on demand-side, such as communication, public participation and demand subsidy policy.This study firstly attempts to investigate stakeholders involved in urban water supply system using stakeholder analysis method. The stakeholder analysis for urban water supply safety is conducted to establish efficient and effective stakeholder involvement by determining who should be involved and how should they be involved. The conclusion has important policy implications of improving urban water supply safety.