The Economics of Water Management in Developing Countries

The Economics of Water Management in Developing Countries

Problems, Principles and Policies

Edited by Phoebe Koundouri, Panos Pashardes, Timothy M. Swanson and Anastasios Xepapadeas

The increasing scarcity of water resources (in terms of quantity and quality) is one of the most pervasive natural resource allocation issues facing development planners throughout the world. This problem is especially prevalent in less developed countries where the management of this valuable resource has become a critical policy concern. This authoritative new volume outlines the fundamental principles and difficulties that characterise this challenging task. The authors begin by detailing the significant problems of water management which are specific to developing countries. In particular, they highlight the political economy of water management in the context of both pricing and institutional reform.

Chapter 3: Selection Through Water Markets

Rim Lahmandi-Ayed and Mohamed-Salah Matoussi

Subjects: economics and finance, environmental economics, environment, environmental economics, environmental sociology, management natural resources, water

Extract

* Rim Lahmandi-Ayed and Mohamed-Salah Matoussi 3.1 INTRODUCTION Regions with a semi-arid and arid climate suffer from an acute shortage of water supply. Since the turn of the century, many of these regions have experienced explosive demography and/or economic and urban growth, which have further aggravated the scarcity of the resource. The only viable alternative is to restrain the growth of water demand by sustainable management. Water markets have been suggested as an efficient means to reallocate water. The first section of the chapter describes the latent crisis that threatens several countries and regions all around the world, deals with the advantages and drawbacks of the water-market alternative and examines some water-market experiences. The second section deals theoretically with selection through water markets. It focuses on the modelling of water markets in the general case of users with different productivities, and determines the conditions that foster water-market activity in terms of water reallocation. Economists have already proposed a wide range of models to emphasize the potential benefits of water markets. Since the pioneering work of Hartman and Seastone (1970) and Howe and Easter (1971), several authors have emphasized the efficiency criterion of interregional transfers. This tradition culminates with the paper of Vaux and Howitt (1984) in which a model of interregional trade is built. It is shown that water transfers can be substituted with new supplies mobilization. However, this work has a macro level perspective and a centralized point of view.1 Over the last twenty years,...

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