ABSTRACT
“Water scarcity affects all social and economic sectors and threatens the sustainability of the natural resources base” (United Nations, 2006). Among the different types of water use, agriculture is the largest consumer of water worldwide, often accounting for 80 percent of water use in a country or region (Wolff and Gleick, 2002). Many economists and policy planners have been searching for a way to improve the efficiency of irrigation water allocation. Water pricing and water markets are increasingly recommended as management strategies in the face of growing scarcity. But there is no consensus, for example, on how water prices should be set. How should transportation costs, including water losses in transit, be assessed? Similar issues cloud the setting of exchange rates to facilitate water trading. This chapter 1 connects resource, environmental and hydrological economics and derives shadow prices over space and time for a model of conjunctive water-use that incorporates conveyance losses that occur during water transmission.
