Cost–Benefit Analysis and Water Resources Management

Cost–Benefit Analysis and Water Resources Management

Edited by Roy Brouwer and David Pearce

How are the economic values of water and water quality accounted for in policy and project appraisal? This important book gives an overview of the state-of-the-art in Cost–Benefit Analysis (CBA) in water resources management throughout Europe and North America, along with an examination of current applications.

Chapter 2: Economic Criteria for Water Allocation and Valuation

R.A. Young

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


R.A. Young 1. INTRODUCTION The water resource presents an unusually wide variety of public management issues of interest to economists. In its varied forms, water supplies important benefits to humankind, both commodity benefits (to households, industries and farms) and public environmental values, including recreation, fish and wildlife habitat and a medium for carrying material residuals (pollution) from human production and consumption activities. Moreover, as a resource whose supply is determined by natural forces, too much or too little water creates other public management problems (Young, 1996a). With growth in population and income, serious conflicts over allocations of water are found throughout the world, and in many areas are rapidly becoming worse (Gleick, 1998). Economic evaluation can play a role in public assessments of proposals for addressing water management problems. Resources have economic value or yield benefits whenever users would willingly pay a price for them rather than do without, that is, whenever resources are scarce.1 Under certain conditions, market operation results in a set of values (prices) that serve to allocate resources and commodities in a manner consistent with the objectives of producers and consumers. In many parts of the world, the services provided by water have been plentiful enough that the resource could be regarded as a practically free good and, until recently, institutional arrangements for managing water scarcity in such locations have not been of serious concern. When markets are absent or do not operate effectively (as are typical conditions in the case...

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