Substitution of piped water and self-supplied groundwater: The case of residential water in South Africa

The choice of water for use by residential households is usually limited to the centralized and more regulated piped water or the decentralized and less regulated groundwater sources. Many households secure access to water through self-supply from groundwater sources, consequently putting the resource at risk. Our analysis shows empirical evidence on the determinants of households’ choice of water-supply sources and suggests a high substitution threshold for piped water and self-supplied groundwater in South Africa. Furthermore, we provide insights into the potential welfare impact of a stylized piped water tariff change that reduces prices and leads to increased piped water choices. •The situation in which piped water and self-supplied groundwater are perfect substitutes seriously affects water planning and management.•Water demand should be disaggregated based on location-specific characteristics rather than having a one-policy-fits-all approach.•Increased use of piped water by households due to tariff rebalancing directly lowers the rate of domestic groundwater exploitation.•Piped water tariff rebalancing could lead to an average monthly welfare gain of about 4% for residential users.