In this chapter we provide an easy-to-read guide to the key issues in water economics and review how an economics framework can be used to address the key global challenges related to water that include: (1) water scarcity, especially in arid and semi-arid zones; (2) poor water quality, especially in poor and emerging economies; and (3) conflict and misallocation across competing uses. Overlaying these challenges is the impact on water resources of climate variability and climate change. For all three challenges, economic analysis provides the means for better decision-making and improved outcomes. To understand the possible solutions to water challenges, we describe in section 14.2 the key characteristics of water and how this influences choices about water. Better decisions about water allocation require methods to value water and so, in section 14.3, we describe methods for valuing water across different locations and between different uses. The market drivers of water, in terms of water supply and demand, are outlined in section 14.4, while the specific characteristics of water markets are described in section 14.5. In the concluding section, we offer remarks about the usefulness of the economics framework in terms of water and its management.
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