Abstract

Water is a scarce resource (asset), a scarce commodity and a scarce input. Economics is particularly suited for dealing with it as economics is the study of how scarce resources are or should be allocated to various uses and users. Water has a price as does any scarce resource, input or asset. This price does not emerge from competitive markets, but it can be constructed to have many of the characteristics that are associated with competitive prices. Water utilities routinely design water tariffs and prices. Their choice of the price is motivated by different considerations than pure economics. They simply choose the price at a level that would help cover their operating costs plus a capital charge in addition to several other objectives. The generation of revenue is rarely the only purpose of a tariff, nor is it the sole consideration. Water tariffs are increasingly used as powerful management tools to balance multiple objectives including revenue sufficiency, environmental sustainability, economic efficiency and equity.