Network Externalities and Sanitation

Despite being a rapidly growing emerging economy and witnessing gradual improvements in human development indices, India still faces a huge challenge of poor sanitation. In this paper, we first develop a theoretical framework of sanitation as a network effect in line with the Swaach Bharat Abhiyaan. Sanitation has network externalities. In our model individuals make two stage choice. In the first stage, they decide whether to construct a toilet by incurring a fixed cost and in the second stage decides upon its optimal usage. In our model, the benefit from constructing and using toilets not only has private benefits, it is also affected by how many in the community does the same. There are two group effect terms- one pertaining to overall sanitation standard and the second one pertains to a penalty imposed on each member who deviates from the community norms. Finally, we assume that the communities are ‘small’, that is individuals are not atomistic. We find that individuals will have higher chances of constructing and using toilets if they know that others in the community are doing so. From an equilibrium where no one in the community has constructed any toilets, we show that, more close knit the community is, less are the chances of constructing toilets for the community. This is because, given that the current community has low sanitation standard, any deviation from that will be punished by the members. Therefore, way to migrate from an equilibrium with low sanitation standard to an equilibrium with high sanitation standard is by (a) doing community level intervention and (b) ensuring more individuals are exposed to the intervention in the presence of each other. Our result allows us strategy to target different communities. The findings can be used by Government to decide how to go about promoting sanitation especially when there is a possible resistance to the new outcome at community level. Our model establishes a parametric relationship between the critical number of individuals who should be communicated the benefits of sanitation, the nature of such communication as well as the financial incentives required to make individuals construct and use toilets.