Abstract
This paper analyses household preferences for in-house piped water in urban and rural Indonesia via a hedonic price model, specified as a constrained autoregression-structural equation model (ASEM). ASEM reduces bias due to time-varying omitted variables and measurement errors. In addition, it provides a convenient way of testing and correcting for endogeneity. On the basis of the Indonesia Family Life Survey data set, we find that on average urban and rural households have the same willingness to pay for in-house piped water, that is, 34.24 per cent of their monthly house rent. For the 25 per cent urban and rural households with lowest expenditure, this percentage is equivalent to 9.41 per cent and 7.57 per cent of their monthly expenditure, respectively. The findings support a need for further investment in in-house piped water in both areas, particularly for the households with the lowest expenditure levels.
