The Institutional Economics of Water

The Institutional Economics of Water

A Cross-Country Analysis of Institutions and Performance

R. Maria Saleth and Ariel Dinar

This outstanding new book provides the most detailed and comprehensive evaluation of water reform and water sector performance from the perspectives of institutional economics and political economy.

Chapter 11: Conclusions with Implications for Theory and Policy

R. Maria Saleth and Ariel Dinar

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


The main thrust of institutional change within the water sector is to enhance the capabilities and increase the readiness of policymakers to solve current and future water challenges. Given this thrust, the major goals of institutional initiatives in the water sector are transparent. These goals are to: treat water as an economic good, strengthen allocation capabilities, increase reliance on market forces, revive the payment culture, ensure financial self-sufficiency, promote decentralized decision structures, and encourage the use of modern technology and information inputs. Institutional reform of the magnitude required to achieve these goals is a daunting challenge in most countries with outdated and poorly functioning water institutions. The economic and resource-related rationale for the thrust and objectives of institutional change, as described above, are well understood. But, the issue of how to effect water institutional change within the constraints and opportunities of political economy continue to remain elusive to both researchers and policymakers. The identification of a strategy for water institutional reform with minimum transaction costs and maximum political acceptability requires sharp understanding of the analytical and operational linkages among the components of water institutions and their ultimate impact on water sector performance. A better appreciation of the mechanics of institution–performance interaction in the water sector also requires a broader and more integrated conception of water institutions to capture both the effects of the exogenous factors constituting the institutional environment for such interaction and the influence emanating from prior, concurrent, and subsequent reforms elsewhere in the economy. Current knowledge enables...

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