Scarcity, Entitlements and the Economics of Water in Developing Countries

Scarcity, Entitlements and the Economics of Water in Developing Countries

New Horizons in Environmental Economics series

P. B. Anand

P.B. Anand argues that if water supply and sanitation were mainly problems of technology or financial resources, they would have been resolved long ago. While appreciating that technology and finances are important, he ascertains that there are many other factors affecting our ability to intervene and improve the effectiveness of policies. The author explores these factors, raising questions such as ‘How is water scarcity defined?’, ‘Are there patterns that indicate how nations use available freshwater resources?’, ‘Does water shortage make nations use water more efficiently?’, and ‘What explains the variation in progress with regard to Millennium Development Goals related to water and sanitation?’.

Chapter 2: Investigating Water ‘Scarcity’

P. B. Anand

Subjects: development studies, development economics, economics and finance, development economics, environmental economics, environment, environmental economics, water


INTRODUCTION Scarcity is a relative concept. In physical terms, scarcity means that there is less of a resource or a commodity. Scarcity is relevant for policy only when it has welfare implications, for example, when an increase in the availability of a resource or commodity would result in increased well-being. Thus, rather than considering scarcity to be good or bad, the normative considerations should be based on the consequences of scarcity and how scarcity affects other important values such as efficiency, equity or sustainability. For example, it is possible to suggest that if a certain resource is scarce, it must be used more efficiently. Various tools of economic analysis such as cost–benefit analysis are employed when policy makers need to compare two or more alternative means of achieving policy goals to choose the most efficient way of meeting the goals. In conducting such cost–benefit analysis, the concept of ‘scarcity rent’ is used. This is the surplus that a water user gains after taking into account all other costs including normal return on capital (CIE, 2004). Thus, the imputed scarcity rent of water is used to value the benefits of improved access to water. However, such an approach is not easy to implement and in the case of a commodity such as water which is essential for sustaining life, the potential for conflict between water for drinking purposes versus water for productive purposes is quite obvious. This chapter will focus mainly...

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