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Chapter 5 - Water Regulation

Published online by Cambridge University Press:  21 April 2021

Ariel Dinar  and
Yacov Tsur
Ariel Dinar
Affiliation:
University of California, Riverside
Yacov Tsur
Affiliation:
Hebrew University of Jerusalem
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Summary

The chapter begins with a discussion of the economic rationale for centralized water regulations and reviews the important features of various water pricing methods. It then formulates the pricing scheme that implements the optimal policy. This optimal pricing scheme consists of (i) water prices that vary across users’ sectors (domestic, industrial, agricultural), (ii) a water flow–based charge levied on suppliers of natural water representing to the shadow (or in situ) price of natural water, (iii) a flow-based charge levied on suppliers of recycled water representing the shadow price of this water (associated with the constraint that recycled water supply cannot exceed the flow of treated sewage generated by domestic and industrial users), and (iv) a quota-based compensation for suppliers of environmental water. Special attention is given to the allocation and pricing of environmental water, i.e., water that supports ecosystem services, and to the role of the shadow (in situ) price of natural water. It is shown that the optimal pricing scheme admits cost recovery, in that the water proceeds it generates cover all the variable and capital costs of supply, including the cost associated with construction and maintaining the infrastructure needed to extract, divert, produce (recycled, desalination), convey water to different sectors, and treat the sewage flow generated by domestic and industrial users. The chapter ends with an example based on Israel’s water economy.

Keywords

water pricing schemeswater quotacost recoverycost allocation
Type
Chapter
Information
The Economics of Water Resources
A Comprehensive Approach
 , pp. 94 - 114
Publisher: Cambridge University Press
Print publication year: 2021

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References

Belinkov, R. 2014. Report of the Committee for Long Term Regulation of Israel’s Water Economy (in Hebrew). Available at www.water.gov.il/hebrew/rates/doclib18/consulting-comittee-mekorot-2014.pdf.Google Scholar
Johansson, R. C., Tsur, Y., Roe, T. L., Doukkali, R., A., and Dinar, . 2002. Pricing Irrigation Water: A Review of Theory and Practice. Water Policy, 4(2), 173–199.CrossRefGoogle Scholar
Kislev, Y. 2012. The Water Economy of Israel, Technical Report, Taub Center for Social Policy Studies in Israel. Available at http://taubcenter.org.il/the-water-economy-of-israel/.Google Scholar
Renzetti, S. 1999. Municipal Water Supply and Sewage Treatment: Costs, Prices, and Distortions. The Canadian Journal of Economics, 32(3), 688–704.Google Scholar
Renzetti, S. 2002. The Economics of Water Demands. New York: Springer.CrossRefGoogle Scholar
Renzetti, S. 2015. Economic Analysis of Industrial Water Use. In: Dinar, A. and Schwabe, K. (eds.), The Handbook of Water Economics. Cheltenham: Edward Elgar, pp. 87–102.Google Scholar
Siegel, S. M. 2015. Let There Be Water: Israel’s Solution for a Water-Starved World. New York: Macmillan.Google Scholar
Smith, V. K., and Zhao, M.-Q. 2015. Residential Water Management: An Economic Perspective on Policy Instruments. In Dinar, A. and Schwabe, K. (eds.), Handbook of Water Economics. Cheltenham: Edward Elgar, pp. 103–125.Google Scholar
Tsur, Y. 2015. Closing the (Widening) Gap between Natural Water Resources and Water Needs in the Jordan River Basin: A Long-Term Perspective. Water Policy, 17(3), 538–557.Google Scholar
Tsur, Y. 2020. Optimal Water Pricing: Accounting for Environmental Externalities. Ecological Economics, 170.CrossRefGoogle Scholar
Tsur, Y., and Dinar, A.. 1997. The Relative Efficiency and Implementation Costs of Alternative Methods for Pricing Irrigation Water. The World Bank Economic Review, 11(2), 243–262.Google Scholar
Tsur, Y., Roe, T., Doukkali, M. R., and Dinar, A.. 2004. Pricing Irrigation Water: Principles and Cases from Developing Countries. Washington, DC: RFF Press.Google Scholar

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  • Water Regulation
  • Ariel Dinar, University of California, Riverside, Yacov Tsur, Hebrew University of Jerusalem
  • Book: The Economics of Water Resources
  • Online publication: 21 April 2021
  • Chapter DOI: https://doi.org/10.1017/9781316678640.006
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  • Water Regulation
  • Ariel Dinar, University of California, Riverside, Yacov Tsur, Hebrew University of Jerusalem
  • Book: The Economics of Water Resources
  • Online publication: 21 April 2021
  • Chapter DOI: https://doi.org/10.1017/9781316678640.006
Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Water Regulation
  • Ariel Dinar, University of California, Riverside, Yacov Tsur, Hebrew University of Jerusalem
  • Book: The Economics of Water Resources
  • Online publication: 21 April 2021
  • Chapter DOI: https://doi.org/10.1017/9781316678640.006
Available formats
×