23 February 2012

Why we need more economics in water policies

The main theme of my book is the need to reform water management institutions that date from a time of abundance, to take rising water scarcity into consideration.

That view may appear static, so here's a dynamic version: We need to manage water efficiently because the velocity with which we are using water is rising. The speed with which we use water is increasing under the twin engines of population growth and economic development. The speed with which water water is circulating in the Earth's ecosystem is increasing under pressure from climate change.

Bottom Line: The combination of faster moving demand and supply requires more exact methods of matching supply and demand in time, place and quality. The reduction of "slack" in the system leaves less room for mistakes, and that's why we need better tools for managing water, and our first choice of tools should come from an economic toolbox because markets and prices are extremely efficient in matching supply and demand with minimal information (remember Hayak).

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