The Use of Economic Instruments for Efficient Water Use

Abstract

The importance of demand management as a key component to any joint water management effort between Israelis and Palestinians regarding the use of underground water has been discussed previously (Lonergan and Brooks, 1994).¹ The conclusion in these studies was clear: there is a pressing need to focus on demand-side approaches for dealing with water resource problems. Demand management must be a key aspect of any joint groundwater management institution involving Israel and the Palestinians. One essential component of such a policy relates to the establishment of an appropriate price structure for water. Ideally, water users should be charged a rate which is equal to the marginal cost of supplying the water. Although most political jurisdictions have developed water pricing structures, generally they are based on principles of cost recovery rather than demand management. Although there has been considerable debate over this issue, the demand for water is elastic in most cases, and marginal cost pricing will affect the demand for water. However, to be effective any pricing measures must also be accompanied by conservation policies.

“The perception of water as a symbol of ritual purity exempts it to a certain extent from the dirtly rationalities of the market.”

Kenneth Boulding (1964)