ABSTRACT
For most natural resources, the existence of scarcity and the extent of the scarcity rent can be readily determined, at least conceptually. In the absence of clear ownership rights and markets, however, scarcity value frequently goes unrecognized. Water resources provide an important example of this phenomenon, given the growing apparent shortages in both urban and agricultural uses. Even if water utilities were aware of the concept and importance of scarcity rent, the absence of market determined water prices makes the valuation of scarcity rents very difficult. The chapter describes pricing practices commonly used by urban water utilities and defines the efficient water price in terms of long-run marginal extraction costs per unit plus a rent element reflecting the value of water in situ in its original aquifer or surface source. It presents estimates for the case of the Honolulu Board of Water Supply.
