Archive for April 10th, 2009

I’d like to see a microeconomist explain this without the tools of power or class analysis.

In Lomas de Manchay, an area of slum-covered hills outside of the Peruvian capital that is home to 50,000 people, mainly poor indigenous migrants from the highlands, clean water is worth gold – almost literally.

Local residents of the shantytown pay 3.22 dollars per cubic metre of water, compared to just 45 cents of a dollar that is paid a few blocks away, across the main avenue, in Rinconada del Lago, one of Lima’s most exclusive neighbourhoods.

Through a straight neoclassical lens, it would seem that the demand function for water would actually be lower for the poor people, since they are able to pay less for it. As for the supply function, I cannot fathom why it would be more costly to transport water to concentrated shantytowns than to spread out mansions.

There’s much more in the article about the politics behind the water management in Peru and in Latin America. My only point is that unless I am missing something (which I may, I’m no expert), power over the lower class is the only thing that can explain these prices.

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