Provision of good-quality drinking water to households in developing countries generates considerable private and social benefits. Therefore water supply to such households is a priority in the social development of many developing countries. Supply of potable water is considered a direct and effective intervention in improving public health. However, owing to the problem of asymmetric information and the huge ‘sunk cost’ involved, the responsibility of implementing water supply schemes rests mainly with the government sector, though the private sector also plays a crucial role in this area in some developing countries (see Whittington et al. 1991).