WATER AS AN ECONOMIC GOOD: INCENTIVES, INSTITUTIONS, AND INFRASTRUCTURE

WATER AS AN ECONOMIC GOOD: INCENTIVES, INSTITUTIONS, AND INFRASTRUCTURE R. MEINZEN-DICK and M. W. ROSEGRANT Environment and Production Technology Division International Food Policy Research Institute Washington, D.C., USA

Abstract Increasing water scarcity around the world, together with evidence of its inefficient use in many contexts, has given impetus to the call to treat water as an economic good. But the objectives of policies to treat water as a commodity are often not clear, and their implementation is far from simple. This paper examines several of the major "economic” approaches to water: raising user fees, efficiency pricing, and water markets, in terms of the incentives they can create for demand management, and the infrastructure required to make them effective. The latter includes not only technical apparatus, but also the institutions to measure water use, collect charges, and adjudicate disputes or third party effects. Keywords: irrigation sector policy, water markets, efficiency pricing, irrigation fees, demand management

1 Introduction Currently, 28 countries with a total population of 338 million are considered water stressed (with freshwater resources in the range of 1,000 - 1,600 cubic meters per capita per year), and 20 of these countries are water scarce (with less than 1,000 cubic meters per person annually). Water shortages will increase dramatically in the next 30 years: by 2025, it is projected that 46 to 52 countries with an aggregate population of around 3 billion will be water stressed [1]. Countrywide, regional, and seasonal water scarcities in developing countries pose severe challenges for national governments. These challenges are exacerbated by degradation of soils in irrigated areas, depletion of groundwater, water pollution and its impact on human health.