Edited by Ariel Dinar and Kurt Schwabe
Chapter 13: Economics of surface water management: a review
Improving the economic performance of proposals that would alter the use of surface water lies at the heart of many current policy challenges. Debates over the utility or value of those proposals are mounting in the face of growing evidence of climate variability and change. Still, the need for economic assessments of water programs is not new. Water has many special economic characteristics that point to the need for economic assessments. For example, water prices typically are not determined in markets and do not reflect resource scarcity; allocation mechanisms are highly political and in many cases can be economically inefficient. In addition, typical property rights structures in widespread use ignore opportunities to improve the economic development potential of water, and water resources are surrounded by market failures such as common property, public goods, decreasing costs, as well as spatial and temporal externalities. Cost–benefit analysis (CBA) is the classic method for performing economic assessments of water programs (Ward, 2012). More recently, the challenge of how economic principles can be used to discover better ways to address impacts of climate variability and change continues to receive attention. These debates are likely to see growing intensity and take on more importance as the once-in-a-century California Drought unfolds in 2015. For example, evidence from July 2014 showed water right prices exceeding $2000 per acre foot (1 acre foot equals 1234 cubic meters) in parts of California.
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