Problems, Principles and Policies
Edited by Phoebe Koundouri, Panos Pashardes, Timothy M. Swanson and Anastasios Xepapadeas
Chapter 1: The Political Economy Context of Water-Pricing Reforms
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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