Closing the Equity–Revenue Gap: Pricing Pathways for Unmetered Urban Water Utilities in the Global South

Abstract

Urban water utilities across South Asia grapple with persistent financial shortfalls and significant inequities in water affordability, with limited tools for reform in largely unmetered systems. In this study, we evaluate non‐volumetric pricing strategies and service reforms capable of improving utility revenues while reducing the disproportionate financial burden of water expenditures borne by lower‐income piped households. Using detailed household‐level survey data and property value assessments from Karachi, Pakistan, we estimate a logistic regression model of bill payment behavior and train a local linear regression forest to model household reliance on expensive alternative water sources. Next, we build a simulation framework using these models to estimate how utility revenues and household water expenditures change for a range of tariff and service reforms, and how these reforms reshape inequality in water expenditures. Simulation results for the current tariff system indicate that coupling full bill distribution with improved service quality could increase utility revenues by approximately 80% by leveraging latent willingness to pay among currently‐unbilled households. Considering two additional tariff systems—one that prioritizes reducing regressivity of the existing tariff system and another that maximizes expected utility revenues—yields evidence of a revenue‐equity tradeoff: shifting to property value‐indexed tariff yields improved equity but reduced utility revenues under both service scenarios. Uniform tariff increases aimed solely at maximizing revenues worsen regressivity, lower payment compliance, and raise affordability concerns. Our findings demonstrate that equity‐focused tariff design combined with administrative and service improvements could enable greater financial sustainability and distributional equity in unmetered urban water systems.