Edited by Robert Halvorsen and David F. Layton
Chapter 17: Water quality and economics: willingness to pay, efficiency, cost-effectiveness, and new research frontiers
Economists have typically considered water quality issues to be within the domain of environmental economics and not in that of natural resource economics. However, there are several reasons why water quality can be thought of as a natural resource that, just like fossil fuels or fisheries, can be managed optimally over time and space. First, one of the important functions of water is its ability to dilute contaminants that are generated by economic activity and transport these contaminants to other locations. If water quality is not managed effectively, society will lose this service that is provided by its water resources. Second, water quality degradation can limit society’s capacity to benefit from the consumption of water. As a result, serious cases of water pollution can be equivalent to reductions in the stock of water available for uses such as drinking water and irrigation. Finally, there is the other direction in the link between water quality and quantity: that is, the impact of water consumption and withdrawals on water quality. For example, excessive withdrawals from a river can lead to increases in the concentration of contaminants in the river as well as increases in water temperature. For these reasons, the management of water quality often cannot be separated from the management of water quantity.
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