The Role of Economics to Promote a Sustainable Use and Management of Transboundary Water Resources

Abstract

The last decade there has been a growing interest in the idea of “treating water as an economic good”. There is, however, a lot of confusion about the meaning of “treating water as an economic good”. It relates to making the right choices about optimal use and optimal allocation of water among users on the basis of socio-economic trade-off analysis. Insight into the value of water in alternative uses is important for making the right choices. This is different from water pricing, which is an economic instrument that can be used to achieve policy objectives, such as demand management or cost recovery. “Treating water as an economic good” does not automatically mean that water should be allocated by competitive market prices so that the available resource is fully allocated, and allocated to its highest-value uses as is often believed. There are other economic instruments that can be used as well such as tradable water rights, subsidies and block-rate tariffs. Regulatory instruments, such as rationing, and persuasive instruments, such as extension, can also be very cost-effective and suitable.