The International Yearbook of Environmental and Resource Economics 2005/2006

The International Yearbook of Environmental and Resource Economics 2005/2006

A Survey of Current Issues

New Horizons in Environmental Economics series

Edited by Henk Folmer and Tom Tietenberg

The Yearbook provides a comprehensive overview of cutting-edge issues in environmental and resource economics.

Chapter 1: Issues in water pricing reforms: from getting correct prices to setting appropriate institutions

Ariel Dinar and R. Maria Saleth

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


Ariel Dinar and R. Maria Saleth* INTRODUCTION Although water misuse and scarcity are two issues that many countries have been living with for many years, it was not until 1992 that the world had faced the declaration, known as the 1992 Fourth Dublin Principle,1 which was soon supplemented by what became known as the 1992 First Rio Principle.2 While the Dublin Principle views water as an economic good, the Rio Principle suggests, implicitly, that water is a social good and humans are entitled to, at least, a certain level (in terms of quantity and quality) of it, especially under the responsibility of their respective governments. The Dublin and the Rio Principles reflect, in fact the contrasting beliefs of water experts and policymakers and demonstrate, to a larger extent, the polarization that could and actually does take place in the global dialogue on managing our planet’s scarce water resources. Such views and beliefs also affect the ever-growing debate over pricing or charging for water by experts representing various disciplines.3 We could start our discussion by describing the growing scarcity of water in many parts of the world. We could emphasize the especially severe situation in developing countries, but we prefer to refer the reader to existing literature on such future scenarios and spatial distribution of the problem (e.g., Seckler et al., 1998; Gleick, 2002). We would rather start by simply referring to the simple ratio for each country of available water resources per capita,4 which is one...

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