The Korea Local Administration Review

The purpose of this paper is to examine factors affecting local water supplycosts and water prices in Korea. Our major concerns are in the following: (1)supply-side factors, (2) demand-side factors, and (3) institutional and financialfactors. We utilize a seemingly unrelated regression (SUR) estimation methodto take into account the correlations between the residuals in the bothequations for our dependent variables, i.e., water supply costs and water prices.In doing that, it utilizes panel data (2000 to 2009) from 156 local watersuppliers in Korea.According to empirical findings, institutional and financial factors, along withsupply-side and demand-side factors, significantly affect local water supplycosts and water prices. In details, water supply capacity and population densityhave negative effects on water supply costs, while water supply rates, waterleakage rates, single household rates, multiple household rates, and watersupply-related debts have positive effects. Water supply capacity, populationdensity, and local financial autonomy make contributions to a decrease in waterprices, while pipe length, a local government categorized as a city rather than acounty, and water supply-related debts contribute to an increase in waterprices. These findings suggest that we need to consider not only supply-sideand demand-side factors but also institutional and financial factors in order toreduce water supply costs and prices.
□ Keywords: Local water supply services; Water price; Water supply cost; SURmodel