Dosi C., Easter W. K. (2002).

Water scarcity: economic approaches to improving management. WP00-2 – Center for International Food and Agricultural Policy, University of Minnesota.



Increasingly, water scarcity is described as a major challenge facing the world. However, its definition remains a controversial issue. For instance, water scarcity is not an absolute concept. Communities truly facing water scarcity are those where basic human requirements can only be satisfied by some very basic changes in life style and/or levels of living. Developing new supplies and improving water management will not provide enough water, given existing water use patterns. Only a limited number of countries fall in this category. A larger number of countries face water scarcity because they need to make some basic changes in their water management including, in some cases, infrastructural changes to facilitate management. Another group of countries have water scarcity and will need to make both management changes and infrastructural investments to develop their water supply. Policy options do exist. Most of them share the objective of treating water and water services as an economic good, by making water demand less independent of users’ willingness to pay for it. Policy options also include regulations and other instruments designed to help prevent the inefficient use of open access water resources. The aim of this paper is to provide a broad overview of these policy options by illustrating their rationale and possible caveats, both on the grounds of the available theoretical literature and real world applications. We begin in section 2 by stressing the importance of improving countries’ social capital (i.e., institutional arrangements and management rules for allocating water between competitive uses) which deserves more attention when assessing scarcity problems and identifying appropriate solutions. In section 3 we describe a number of typical market and government failures, stemming from water’s (and water services’) intrinsic features, as well from the traditional idea that people have a basic right to receive water, and that water projects, per se, induce economic development. We then concentrate on some economic approaches to improving water management, i.e., the establishment of water markets and the privatization of water utilities. In section 4 we focus on water policies in the United States and European Union. The aim is to provide an overview of some ongoing developments, especially in regards to privatization and the use of water markets. National statistics in both areas seem to show a relative abundance of fresh water. Yet the persistent geographical water imbalances, the increasing importance attributed to quality issues, the competition between traditional water uses and resources conservation, and a reconsideration of the role of the public sector, are raising serious questions regarding the traditional approaches to resources management and the operation and management of water services. Finally, section 5 provides some general concluding remarks and policy suggestions.