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Regulatory and Economic Instruments: A Useful Partnership to Achieve Collective Objectives?

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Reforming Water Law and Governance

Abstract

In this chapter we examine how water governance and demand management arrangements can be linked to economic instruments, such as water markets, to address the broad range of water reallocation problems that exist in many global contexts. The utilization of economic instruments is context-specific throughout the world and can take many forms. This chapter therefore lists the pros and cons of some more common instruments. While successfully combining regulatory and economic instruments is far from straightforward, policy-makers can learn from growing evidence of successful partnerships between these two approaches. It may be costly both in terms of political support and transaction investments to strip away existing arrangements in favour of more flexible and better-suited institutions to manage scarce water resources. However, it would be expected that ignoring the problems, and hoping they will resolve themselves, would be more harmful to private and public welfare outcomes in the long run.

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Notes

  1. 1.

    Market failure occurs when markets fail to allocate resources efficiently. In this case, no market may exist for the good.

  2. 2.

    Missing markets deal with intertemporal externality problems that create information asymmetry for current generations, and exclude the concerns of future generations.

  3. 3.

    It is this point that can work against arguments for provision of water as a basic human right. The infrastructure involved to establish (and eventually replace) the means to cleanse, store and deliver water is significant—usually regardless of the volumes put through it. Thus, while water access is a right, it comes at a high economic cost which must be addressed in some meaningful way by policy-makers.

  4. 4.

    In contrast, governments in developing countries typically impose price controls to keep prices below competitive levels.

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Acknowledgements

Dr. Loch was funded via an Australian Research Council grant DE150100328, and the UNESCO grants program 2015–16. Dr. Adamson was funded via an Australian Research Council grant DE160100213. Dr. Perez-Blanco was funded via AXA Research Fund Post-Doctoral Fellowships Campaign 2015, and the European Institute of Technology via Climate-KIC Europe’s AGRO ADAPT Project. Dr. Rey was funded via the Natural Environment Research Council (NERC) programme on Droughts and Water Scarcity, funded through the Historic Droughts (NE/L010070/1) and MaRIUS (NE/L010186/1) projects.

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Authors and Affiliations

  1. Centre for Global Food and Resources, University of Adelaide, Adelaide, SA, Australia

    Adam Loch & David Adamson

  2. Universidad de Salamanca, Salamanca, Spain

    C Dionisio Perez-Blanco

  3. Cranfield Water Science Institute, Cranfield University, Cranfield, UK

    Dolores Rey

  4. Centre for Resources, Energy and Environmental Law at Melbourne Law School (CREEL), Melbourne, VIC, Australia

    Erin O’Donnell

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  1. Adam Loch
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  2. C Dionisio Perez-Blanco
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Correspondence to Adam Loch .

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Editors and Affiliations

  1. UNSW Sydney, Sydney, NSW, Australia

    Cameron Holley

  2. University of Canberra, Bruce, Canberra, ACT, Australia

    Darren Sinclair

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Loch, A., Perez-Blanco, C.D., Rey, D., O’Donnell, E., Adamson, D. (2018). Regulatory and Economic Instruments: A Useful Partnership to Achieve Collective Objectives?. In: Holley, C., Sinclair, D. (eds) Reforming Water Law and Governance. Springer, Singapore. https://doi.org/10.1007/978-981-10-8977-0_6

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