What is Water Economics?

Brendan McGuigan

Water economics is a broad field looking at a number of water management issues from an economic perspective. Water economics includes water law, various institutions that regulate water use and distribution, and national water policies. Water economics serves as a lens through which to view the problems facing the world in regards to water, from infrastructure support to economic financing to environmental impacts.

The World Commission on Water is one of the largest groups in the world dealing with water economics.
The World Commission on Water is one of the largest groups in the world dealing with water economics.

The World Commission on Water is one of the largest groups in the world dealing with water economics, studying the current situation of water in the world and looking at potential courses to help the world move forward towards equitable water distribution. A large amount of their work in water economics comes in the form of reports, collating data from different organizations and drawing determinations that can serve to influence policies at the governmental and super-governmental level.

Increased bottled water consumption can impact the supply and demand of water.
Increased bottled water consumption can impact the supply and demand of water.

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The Commission estimates, for example, that for developing countries to remain somewhat healthy in regards to access to healthy drinking water, annual infrastructure investment will have to increase from roughly $75 billion US Dollars (USD) to $180 billion USD by 2030. From this need comes a number of other policy suggestions: national investment needs to increase in those developing nations, investment from developed nations needs to increase, and private sector investment will be needed to make up the shortfall between what the public sector can provide and what is needed.

Water economics is somewhat unique, because water itself fills a unique role as a resource. Because of its fluidity and integration with a global chain, it differs from traditional resources such as timber or oil. This means an entirely different set of economic outlooks are necessary to understand the problems facing water distribution and to come up with solutions. Water economics looks at a more integrated micro-economics, which is able to take into account downstream costs of upstream actions, while at the same time factoring in political realities when trying to design policy suggestions.

Of course, water economics also looks at the more traditional economics involved in water rights issues. For example, a field of water economics focuses on supply and demand issues and how they are impacted by things like increased bottled water consumption, the basic economics of buying and selling margin at exorbitant margins, and how the increased privatization of national water resources impacts the traditional place of water as a commons on the national level.

The supply and demand model for water actually turns out to be fairly straight-forward, and the rapidly increasing scarcity of water leads to modeling that suggests demand in the not-too-distant future that will far outstrip supply. One increasingly important area of water economics therefore becomes forming policy suggestions as to how to address this enormous disparity, and strategies for lessening the impact, by reducing water use in non-essential areas like manufacturing, by coming up with more water-friendly methods for intensive areas like agriculture, and by developing new technologies to increase the usable water supply.

Organizations like the World Bank have been involved in water economics for some time, and continue to utilize the field extensively. With the crisis of water becoming more and more apparent, many national governments have also hired on numerous experts on water economics, and even regional and municipal governments have found it advisable to get help. Additionally, many people traditionally involved in water-related industries, such as aquatic engineers, farmers, environmentalists, and water lawyers, are studying water economics to supplement their understanding of the global economic issues surrounding water.

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