ABSTRACT
Abstract 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 pricebased 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 [1]. 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.
