Selected Empirical Analyses
Edited by Phoebe Koundouri
Chapter 3: Water pricing reforms in Mexico: the case of the manufacturing sector
Hilda Guerrero Garcia Rojas and Alban Thomas 1. INTRODUCTION It is well documented that water is becoming a resource with increasing scarcity for a majority of semi-arid countries. In order to promote eﬃcient water management, policymakers are trying to ﬁnd the best policy tools to allocate existing water reserves and persuade users to adopt conservation practices. Dinar and Subramanian (1997) document country experiences on water pricing, and identify water pricing as a key to improving water allocation and encourage resource conservation. Hence, reforms on water pricing have come to play an important role in encouraging eﬃcient use of water. Dinar (2000) addresses this issue and presents a framework for comparing water pricing reforms, as well as selected experiences of reforms in diﬀerent sectors and countries. In Mexico, water management rests on a delicate balance between government regulation and market mechanisms. Rather than going into a complicated scheme of calculating, if possible, opportunity costs or longterm marginal costs, Mexico’s approach to pricing water has been pragmatic in nature, considering the political resistance associated with the introduction of any kind of new ﬁscal burden. That is why the introduction of water levies in 1986 was less for the purpose of assigning the ‘right’ price than to introduce the concept of water as an economic good with a speciﬁc value. Industrial water use in Mexico is 6.6 km3 per year, with 5 km3 surface water and 1.6 km3 from a groundwater source,1 representing about 9% of total water...
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