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Managing Water Scarcity at a River Basin Scale with Economic Instruments

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  • Carlos Mario Gómez Gómez

    (Department of Economics, Universidad de Alcalá, Alcalá de Henares, Spain†Madrid Institute for Advanced Studies in Water Technologies, (IMDEA-Water) Alcalá de Henares, Spain)

  • C. D. Pérez-Blanco

    (#x2021;Centro Euro-Mediterraneo sui Cambiamenti Climatici (CMCC), RAAS Division, Isola di San Giorgio Maggiore, 8. 30124 Venice, Italy§Fondazione Eni Enrico Mattei (FEEM), Isola di San Giorgio Maggiore, 8. 30124 Venice, Italy)

  • David Adamson

    (#xB6;Centre for Global Food and Resources, The University of Adelaide, Adelaide, Australia)

  • Adam Loch

    (#xB6;Centre for Global Food and Resources, The University of Adelaide, Adelaide, Australia)

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 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.

Suggested Citation

  • Carlos Mario Gómez Gómez & C. D. Pérez-Blanco & David Adamson & Adam Loch, 2018. "Managing Water Scarcity at a River Basin Scale with Economic Instruments," Water Economics and Policy (WEP), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 1-31, January.
  • Handle: RePEc:wsi:wepxxx:v:04:y:2018:i:01:n:s2382624x17500047
    DOI: 10.1142/S2382624X17500047
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