ABSTRACT
The discussion begins with a general overview of water resources. It then presents the hydrologic cycle model, in order to provide a scientific basis for much of the later discussion of water use. The chapter then turns to an examination of the various institutional rules for governing water use and development, focusing on the rules that have grown up in the United States for both surface rights and groundwater rights. The discussion then turns to some basic economics of water use, as applied to the special issues that arise in water use and water development, both within the context of surface water and groundwater. This leads naturally to a discussion of water policy. A natural analytical framework for examining water policies is to draw a distinction between supply-based and demand-based policies, which is used to organize the discussion of policies. The discussion first presents a number of supply-based policies including water development projects, long-distance water pipelines, and finally desalination. It then turns to demand-based policies, which include water demand management and pricing reform of government water supply agencies. The discussion then turns to water markets, a topic that has received a lot of attention from economists. After presenting the arguments for and concerns about water markets as a means of allocating water, this discussion concludes by examining water markets through the lens of transaction costs. The chapter concludes with a comparative examination of two local water resources with very different management outcomes: the Ganges River in India, and local irrigation projects in many low-income countries. This comparison is facilitated by application of the SES framework, which provides some insights into the starkly different management outcomes.
