Managing Water Scarcity at a River Basin Scale with Economic Instruments

Abstract

This paper presents a conceptual framework for both assessing the role of economic instruments, and reshaping them in order to enhance their contribution to the goals of managing water scarcity. Water management problems stem from the mismatch between a multitude of individual decisions, on the one hand, and the current and projected status of water resources on the other. Economics can provide valuable incentives that drive individual decisions, and can design efficient instruments to address water governance problems in a context of conflicting interests and relevant transaction costs. Yet, instruments such as water pricing or trading are mostly based on general principles of welfare economics that are not readily applicable to assets as complex as water. A flaw in welfare economic approaches lies in the presumption that economic instruments may be good or || Corresponding author. This is an Open Access article published by World Scientific Publishing Company. It is distributed under the terms of the Creative Commons Attribution 4.0 (CC-BY) License. Further distribution of this work is permitted, provided the original work is properly cited.Water Economics and Policy, Vol. 4, No. 1 (2018) bad on their own (e.g., finding the "right" price). This vision changes radically when we focus on the problem, instead of the instrument. In this paper, we examine how economic instruments to achieve welfare-enhancing water resource outcomes can realize their full potential in basin-scale management contexts. We follow a political economy perspective that views conflicts between public and private interest as the main instrumental challenge of water management. Our analysis allows us to better understand the critical importance of economic instruments for reconciling individual actions towards collective ambitions of water efficiency, equity and sustainability with lessons for later-adopting jurisdictions. Rather than providing panaceas, the successful design and implementation of economic instruments as key river basin management arrangements involves high transaction costs, wide institutional changes and collective action at different levels.

Valuing Households’ Willingness to Pay for Water Transfers from the Irrigation Sector: A Case Study of the City of Seville (Southern Spain)

“…These new priorities contemplate a growing demand for urban and industrial uses and also for ecosystem services (i.e., ecological flows), in contrast with customary allocation, where agriculture had traditionally become the main user (e.g., representing 85% of total water use in the southern and south-eastern Spanish basins) [76]. Several international organizations have raised awareness regarding the need to introduce mechanisms that enable a better allocation of water resources, largely by means of reducing agricultural uses in order to allocate these resources to meet environmental uses or other uses of greater economic value [7,75,77]. The Green Paper on Water Governance indicates that, in the case of Spain, the conflicts between economic sectors are expected to increase in the future as both water scarcity and water demand increase, thereby triggering the urgent need for a more flexible allocation of rights [51].…”

“…These results are significant, since the increasing water scarcity and rainfall variability in southern Mediterranean Europe will probably lead to an increase in the number and volume of transfers of water resources from agriculture to other uses in the near future. This entails increased efforts in the assessment of the value of water in a number of different uses and the need for integrated re-allocation measures in basin-wide management plans [77]. In this respect, water transfer programs between alternative uses should be integrated into an overall water resource management regime to adapt and mitigate water-scarcity effects on society as whole [78].…”

Sensitivity of Agricultural Development to Water-Related Drivers: The Case of Andalusia (Spain)

“…In comparison with annual crops, fruit tree production is generally more water-intensive and more sensitive to extreme events, which are expected to be more frequent under climate change conditions [64]. This points to the need for adaptation strategies that enhance the resilience of agricultural systems to the impacts of climate change by improving agricultural water management to reduce water losses (i.e., non-beneficial water evaporation from soil) [10,90], water governance (i.e., water rights, water markets) [10,91], and water use efficiency [62,92]. In this regard, irrigation efficiency gains can contribute to lower water use and reduce crop-responsiveness to water costs.…”

Measuring the Transaction Costs of Historical Shifts to Informal Drought Management Institutions in Italy

“…The prevailing view following the referendum was that access to water should be treated as a fundamental right, not subject to free market reallocation. Thus, the referendum outcome limited the use of formal market instruments such as water pricing, trading, or buyback for drought management [43], requiring alternative institutional arrangements. Ultimately, the capacity of river basin managers to coordinate parties and address climate change impacts and future population and economic growth, and/or to prioritise different water uses during drought has been compromised, and regional governments granted the power to regulate WAL matters.…”