Externalities in Quito

Abstract

Squatter settlements in Quito are a chronic problem, which constitutes 16 % of the total population of the city. Increasingly informal settlements in Quito are being regularized. Residential development and agricultural activities are prohibited in the protected areas or open space. Squatter settlements have a slower rate of growth than in the 1980s and 1990s. Illegal settlements and squatting are increasingly rare. Similar to the analysis in Kathmandu, we measured the incidence of externalities faced by the SS and NSS for Quito. The differences were statistically tested using a t test to confirm whether SS or NSS faced the negative externalities from their activities. Net economic benefits of reducing the negative externalities were estimated using the difference between the WTP for reduction of negative externalities and the actual cost paid due to negative externalities. The results suggest that the average cost of negative externalities per household was USD 324.56 and average WTP per household was USD 579.68. An annual net economic benefit of reducing negative externalities for per household is USD 255.13. The allocation of resources for the intervention of reducing the negative externalities in the SS would improve the societal welfare. The ratio of any two parameters education and income gives us the possible substitution effect to reduce the externalities. The results suggested that education is the most powerful instrument to improve societal benefit through reducing negative externalities. A 10 % in the education level of the household is associated with 18.51 % increase in societal welfare due to the reduction in negative externalities. The policy that helps to increase education level including awareness with counseling program, access to information, and campaign programs is needed in the SS.