Water: Economics, Management and Demand

Water: Economics, Management and Demand

Water: Economics, Management and Demand

Water: Economics, Management and Demand


This book forms the proceedings of the 18th European conference on irrigation and drainage. Focusing on the role of irrigation it will be of use to planners, designers and policy makers.


International Irrigation Management Institute, Colombo, Sri Lanka


Winrock International Institute for Agricultural Development, Arlington, USA


There is wide interest in, and support for the idea of treating water as an economic good. However, the role of water-as a basic need, a merit good, and a social, economic, financial and environmental resource-make the selection of an appropriate set of prices exceptionally difficult. Further, the application of price-based instruments, once an appropriate value system has been agreed, is particularly difficult in the case of water, because the flow of water through a basin is complex, and provides wide scope for externalities, market failure, and high transaction costs. While judiciously applied market tools can be expected to have benefits, in many cases the necessary and sufficient conditions, especially defined and enforced water rights, are not yet in place. In the absence of such preconditions, interventions that introduce market forces may have unpredictable, and possible very negative effects.

Keywords: Water management, water as an economic good, economic analysis

1 Introduction

The now famous proclamation that water should be treated “as an economic good” originated in the Dublin Conference. The proclamation was a compromise between those, mainly economists, who wanted to treat water in the same way as other private goods, subject to allocation through competitive market pricing, and those who wanted to treat water as a basic human need that should be largely exempted from competitive market pricing and allocation.

This distinction is further complicated by the distinction in economics between the “economic” value of a good and its “financial” value. The two values rarely correspond, and as will be argued, for water the divergences are exceptionally complex and important. Thus it does not follow from the declaration that water is an economic good that it should be allocated by competitive market prices that reflect only financial, and not necessarily economic, social, or environmental, values.

Water: Economics, Management and Demand. Edited by Melvyn Kay, Tom Franks and Laurence Smith. Published in 1997 by E & FN Spon. ISBN 0 419 21840 8.

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