Handbook on the Economics of Natural Resources

Handbook on the Economics of Natural Resources

Edited by Robert Halvorsen and David F. Layton

The topics discussed in the Handbook on the Economics of Natural Resources are essential for those looking to understand how best to use and conserve the resources that form the foundation for human well-being. These include nonrenewable resources, modeling of biological resources, conservation of biological resources and water resources. The expert contributors of this Handbook provide solutions to many of the problems that growing populations now face, and sketch the likely future developments in the field of natural resource economics whilst paving the way for new thinking.

Chapter 15: Water rate policy: prescription and practice

Ronald Griffin

Subjects: economics and finance, environmental economics, environment, environmental economics


Water scarcity is prone to mismanagement due to influential features that obscure efficient policy choices and establish political obstacles to the installation of efficient policy. Chief among these influences are the natural monopoly character of water service, the blended rival/non-rival nature of water consumption, and the potentials to deplete groundwater stocks, reduce environmental flows, and degrade water quality. Acting in concert, these features create a tangle of challenges spanning the full theoretical range of market failures, those conditions that warn us about the capabilities of decentralization. Merely ‘letting the market work’ is not an option for processed water. Although governments can establish transferable water permits to use the naturally occurring waters of streams and aquifers and thereafter rely on administered markets to advance allocative efficiency for raw (unprocessed, in situ, natural) water, such strategies are impractical for processed water. Consequently, if we are to coax good behavior from water consumers and avert popular pressure for uneconomic water development projects, it is necessary to get the rates right and marry them with sound regulations that can be activated during harsh seasons or drought.

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