Water resource quality effects on water treatment costs: An analysis for the Brazilian case

The cost effects of water resource quality on water treatment are critical factors for firms' performance. However, few economic studies incorporate water quality parameters into cost functions. This study's main contribution was to combine data on Brazilian water treatment companies and surface water monitoring stations to produce a unique panel data set from 2003 to 2017, and then estimate the effects of water quality on water treatment costs. Based on a panel model with fixed effect approach, our findings show that disturbances on turbidity have significant effects on optimal costs. On average, one-percent increase in turbidity increases the costs in 0.1162%. Therefore, the results indicate that water treatment companies have incentives to improve water resource quality in the long run, which should be considered by regulatory agencies to connect economic incentives and landscape protection.