HEDONIC PRICING FOR A COST BENEFIT ANALYSIS OF A PUBLIC WATER SUPPLY SCHEME

During the 1950s and 1960s pipelines were built to provide water to many farms in the central wheatbelt of Western Australia using public funds. The resulting network has become known as the Comprehensive Water Supply Scheme. The expansion of the Scheme is currently under consideration. An ex ante cost benefit analysis of the proposed expansion is undertaken. An earlier analysis which focused on the benefits of the reduced necessity to cart water was rejected by farmer groups because of the inability of the analysis to properly account for domestic benefits and risk reduction. To overcome these criticisms a hedonic model of farm land values is formulated in which the independent variables are the characteristics of a property, including whether or not the property is connected to the Scheme. The implicit marginal price (or value) of Scheme connection is then derived. An advantage of this technique is that it estimates the value that the farmers allocate to Scheme water in the market place. The conclusion is that the benefits of Scheme water are considerably less than the costs.