Problems and prospects in the political economy of trans-boundary water issues

Abstract

The problem of water scarcity has become more acute in many regions of the world because of economic and population growth and because of degradation of historic water resources. New resources and more efficient use of old ones are needed, but large investments and effective institutions are needed for allocating water, monitoring its use, and ensuring its quality. Because most economically feasible but yet undeveloped water projects involve water drawn from and used by multiple jurisdictions, regional or international cooperation is required. This paper develops and applies a framework to evaluate the potential for trans-boundary cooperation in water resource development/sharing with an application to Israel and its neighbors. This paper also discusses the possibilities for improving domestic water allocation both among regions and sectors. The benefits from partial domestic price equalization are apparently greater than the benefits of international cooperation but are blocked by other national objectives. However, international water projects may be instrumental in facilitating domestic price equalization because the costs of price equalization to losers are reduced when the two measures are undertaken in conjunction. Conversely, when prices are partially equalized as international projects are undertaken, the value of international projects is higher. With these considerations, new water projects and new prospects for peace in the region can potentially break existing coalitions behind current water pricing schemes.