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The Economics of Water Management in Developing Countries

Problems, Principles and Policies

Edited by Phoebe Koundouri, Panos Pashardes, Timothy M. Swanson and Anastasios Xepapadeas

The increasing scarcity of water resources (in terms of quantity and quality) is one of the most pervasive natural resource allocation issues facing development planners throughout the world. This problem is especially prevalent in less developed countries where the management of this valuable resource has become a critical policy concern. This authoritative new volume outlines the fundamental principles and difficulties that characterise this challenging task. The authors begin by detailing the significant problems of water management which are specific to developing countries. In particular, they highlight the political economy of water management in the context of both pricing and institutional reform.
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Chapter 1: The Political Economy Context of Water-Pricing Reforms

Ariel Dinar


Ariel Dinar* 1.1 INTRODUCTION Water is a resource that influences every one’s life directly, or indirectly, everywhere. It is an important factor of production, it is a cultural and religious substance, and it is needed for basic hygiene of rich and poor. As water scarcity grows, as its quality deteriorates, as water-related environmental and social concerns rise, and as climatic change amplifies extreme water events (floods and droughts), the water sector becomes a critical and serious policy challenge in many countries. Water scarcity – whether quantitative, qualitative, or both – originates more from use inefficiency and poor management than from the physical constraints of its supply. This, in fact, is the heart of water crisis and it is such a diagnosis that raises the hope that the problem is solvable through better water use and management. How to design, initiate, and sustain these changes and tackle the water challenge within the economic, ecological, and political constraints, is the focus of ongoing debate among economists, both in national and international arenas. Water pricing is one of many policy interventions called upon to mitigate water sector crisis (World Water Council, 2000). It is one of the most important policy instruments for integrating supply augmentation with demand management so that an efficient allocation and use of the alreadydeveloped resources provide the economic and financial justification for the development of additional supplies from both conventional and unconventional sources. It has two key roles: (1) a financial role of being the main...

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