Research article Levers supporting tariff growth for water services: evidence from a contingent valuation analysis Andrea Guerrini a, * , Vania Vigolo a , Giulia Romano b , Federico Testa a a Department of Business Administration, University of Verona, Via Cantarane 24, Italy b Department of Economics and Management, University of Pisa, Via C. Ridolfi 10, Pisa, Italy article info Article history: Received 25 April 2017 Received in revised form 15 September 2017 Accepted 3 November 2017 Keywords: Tariff sustainability Investment improvement Service quality Privatization Customer Information campaign abstract The backwardness of the water utilities sector necessitates urgent investment in infrastructure to improve water quality and efficiency in water supply networks. A policy of tariff growth represents the main source to sustain such investments. Therefore, customer engagement in the form of willingness to pay (WTP) is highly desirable by water utilities to obtain social legitimization and support. This study examines the determinants of consumers' WTP for improvement programs for three drinking water issues: quality of water sources, renewal of water mains, and building of new wastewater treatment plants. The study is based on a survey conducted among a sample of 587 customers of a water utility located in the province of Verona in the north of Italy. The contingence valuation method is used to measure WTP. Specifically, an ordinal logistic regression model yields the following significant de- terminants of WTP: quality of water and services provided, preference for privatization of the water utility, sustainable consumption of water, and some socio-demographic variables. The findings provide interesting insights into the drivers of WTP as well as managerial recommendations for water utilities. In particular, the findings show that water utilities need to improve service and water quality to increase customers' acceptance of tariff growth. In addition, utilities should invest in customer education and communication activities focusing on specific age groups (e.g., older customers) to enhance their WTP. Finally, communication strategies should reinforce the possible role of liberalization and privatization in supporting infrastructure investments. © 2017 Elsevier Ltd. All rights reserved. 1. Introduction Firms providing public services are often affected by poor technical efficiency, low economic profitability, and weak financial sustainability, and this also applies to water utilities (Da Cruz et al., 2012; Romano and Guerrini, 2011; Romano et al., 2013), which face the additional risks of water scarcity and inefficient water use, since water losses are approximately 36% of water fed into the water grid (OECD, 2011), with a maximum average of 43% in the south of Italy (Cittadinanzattiva, 2013). In Italy, investment required in the water sector to meet infrastructure needs is around V 65 billion in the next 30 years, according to a plan of the national authority for energy, gas, and water services (AEEGSI). According to financial data for 126 water utilities, the total amount of planned investment per inhabitant per year realized from2014 to 2017 was V 35 in the northern regions, V 48 in the central regions, and V 18 in the southern regions (REF, 2015), while the average value of investment in other European countries ranged from V 80 in Germany to more than V 120 in Denmark. The OECD estimated the required in- vestments for Italy at V 80 (OECD, 2011). However, this require- ment does not match the scarce funds available to national and local governments, along with the effects of the EU Stability and Growth Pact, which limits the expenditure capacity of municipal- ities. For this reason, a policy based on tariff growth is the main source of finances to realize new investment (Massarutto and Ermano, 2013; Massarutto et al., 2013). The total revenues collected through tariffs increased annually between 6% and 7% from 2012 to 2015 (REF, 2015, when utilities applied the method developed by the national regulator, the AEEGSI, based on the full- cost recovery rule. According to a recent report of the national authority (AEEGSI, 2016), the highest price variations for 2014 were recorded in the central regions (6.19%), while the lowest growth was recorded for the southern regions and islands (0.36% * Corresponding author. E-mail addresses: andrea.guerrini@univr.it (A. Guerrini), vania.vigolo@univr.it (V. Vigolo), giulia.romano@unipi.it (G. Romano), federico.testa@univr.it (F. Testa). Contents lists available at ScienceDirect Journal of Environmental Management journal homepage: www.elsevier.com/locate/jenvman https://doi.org/10.1016/j.jenvman.2017.11.008 0301-4797/© 2017 Elsevier Ltd. All rights reserved. Journal of Environmental Management 207 (2018) 23e31