Edited by Ariel Dinar and Kurt Schwabe
Chapter 19: Water markets: from theory to practice (with focus on the USA)
Reliability of supply is the most important issue facing water agencies in arid regions throughout the world. Securing adequate supplies is made difficult first and foremost by uncertainty regarding future water availability, due to variation in natural precipitation from year to year. The growing demand for water from increasing populations and the growing recognition that the environment is a legitimate use of water further complicate the task of providing reliable supplies. Supply reliability is fundamentally a matter of risk, both locally and regionally. Although future water supplies are not known, water agencies must make forecasts of future demand and supply conditions and acquire adequate supplies accordingly. They have traditionally accomplished this by investing in infrastructure to store naturally occurring precipitation when and where it falls and transport it to where it is needed. Groundwater aquifers also help water agencies to substitute away from surface water supplies in dry years. Water agencies also can implement conservation programs and retail pricing schemes that signal the true economic value of water to consumers to reduce demand.
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