Utility customer nonpayment and debt is an issue in many cities in the Global South, jeopardizing utilities’ ability to recover operations and maintenance costs through tariffs and their ability to finance system expansions or improvements. We develop a two-stage game that describes the interaction between a utility and a representative household in which the utility chooses whether to disconnect a non-paying household and the household decides whether to pay their bill. The model introduces a moral cost to customers who skip payment and political pressure on utilities to avoid disconnecting a non-paying household. We show that a lower moral aversion to non-payment makes disconnection more likely. We also model the impact of changing the availability of alternative water sources that a disconnected household can access. We find that when the relative price of these sources is high, the household is more likely to pay a bill, making the threat of disconnection less likely.
Keywords: game theory, utility bill payment, water finance, utility policy