Economic Instruments for Water Management

Economic Instruments for Water Management

The Cases of France, Mexico and Brazil

Ronaldo Seroa da Motta, Alban Thomas, Lillian Saade Hazin, Jose Gustavo Feres, Céline Nauges and Antonio Saade Hazin

This book argues that the economic appeal of using water charges to promote efficiency in usage and pollution control can be constrained by institutional and operational problems. Analysing the cases of France, Mexico and Brazil, the authors – respective local experts – illustrate that barriers are similar despite the existing differences among these economies.

Chapter 1: Introduction

Lilian Saade Hazin and Antonio Saade Hazin

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


1 Ronaldo Seroa da Motta The economic literature commonly identifies economic instruments (EIs) as a ‘better’ way to achieve environmental goals than specified quantity and technological standards commonly known as commandand-control mechanisms (CACs). However, the choice of an appropriate economic instrument is theoretically complex; and the experiences with their application are full of controversy about their effectiveness in accomplishing desired environmental targets. Environmental regulators usually apply two different kinds of individual standards to induce agents to conform to environmental or resource management goals. One type specifies emission rates or levels, as well as permissible rates of resource (water) use. The other kind of standard is technologically defined, requiring for example a specific kind of pollution control technology. Overall ambient standards also are set to identify the aggregate environmental performance targets in, for example, a watershed. Theoretically, individual technology or performance standards would be set in order to make agents achieve, in aggregate, the ambient standards. If instead of complying with a uniform individual standard, pollution or resource use levels were charged, each agent’s control or use level would be different. Agents with lower costs will control more than agents with higher costs (and agents with higher demand responsiveness for the water resource will reduce consumption less, for a given charge, than those with a lower demand responsiveness). With a uniform pollution charge, all private agents will choose between paying the charge and reducing the effluent to the point where they have the same marginal cost of control. In this situation,...