Water markets : factors in efficient water allocation

Colvin, Jamie Cameron (2005-12)

Thesis (MBA)--Stellenbosch University, 2005.

Some digitised pages may appear illegible due to the condition of the original hard copy

Thesis

ENGLISH ABSTRACT: Water is essential for life. Like the very air that surrounds us the omnipresent and indispensable qualities of water pervade throughout all of our lives. For reasons of health, community and trade the beginnings of all civilisations were proximate to the mighty rivers of the world. In a rapidly expanding global village, the priority for our future is to secure the management of increasing levels of water demand, given the finite natural cycle that all water is subject to and derived from; the hydrological cycle. The focus of this papers investigation is how best to allocate the value of water through the relatively nascent developments of water markets. The premise of utilising markets for allocative efficiency is suitably ingrained in the workings of many societies today, and the need to treat water with commensurate value and avoid waste is encapsulated in the Dublin Principles, where #4 states; 'Water has an economic value in all its competing uses and should be recognised as an economic good'. Which in isolation has merit, the legacy of state water management is usually associated with underperformance at best or incompetence and corruption at worst, and therefore the introduction of market mechanisms to provide water with allocative efficiency and true value, should be a positive undertaking for change. However the requisite conditions for proficient markets and perfect competition; which primarily include, that all agents are buyers and sellers, for a homogeneous product, with perfect information, without externalities, after the full and fair assignment of property rights, where all goods and services are private goods, and where transaction costs remain close to zero; would seldom be applicable to water. The many idiosyncrasies of water inhibit the application of competitive markets. Water could easily be defined as a public good with riparian rights, subject to a range of social and environmental externalities, whilst incurring high structural entry costs and remaining subject to the problematic vagaries of the natural supply cycle. Demand profiles also give water a heterogeneous definition, as domestic uses include both sanitation and drinking water, whilst various levels of quality are required for industry and agriculture, and even recreation. This paper seeks to define those factors that both warrant and limit the introduction of market functions to water management. The premise of this paper remains the search for better ways of valuing water, and how to incorporate fully the foundations of the environment and social criteria of health, and poverty reduction within these economic considerations. The conclusion defines a premium / discount solution to market traded water prices, which internalises these factors.

AFRIKAANSE OPSOMMING: Water is noodsaaklik vir lewe. Net soos die lug wat ons omring het water ook alomteenwoordige eienskappe wat In onskeibare deel van ons lewens vorm. Die ontstaan van alle beskawings is te vinde in die nabyheid van groot en gevestigde riviere vir redes van gemeenskaplikheid, gesondheid en handel. Vandag se geintegreerde en snel-groeiende samelewing met sy toenemende vraag na water, noodsaak 'n toekomsgerigte benadering om waterbronne te bestuur gegewe die vaste water natuursiklus waar water vandaan kom en bewaar word in. Die fokus van hierdie studie is om die beste metodes te vind vir waterallokasie met verwysing na die ontwikkeling van water markte oor die eeue. Die gebruik van die markstelsel om water effektief te allokeer is die grondslag van baie samelewings vandag. So erken die Dublin beginsels die noosaaklikheid om 'n waarde te plaas op water beklemtoon dat dit nie vermors moet word nie. Beginsel #4 bepaal: "Water het 'n ekonomiese waarde in al sy vele gebruike en moet ooreenkomstig erken word as ekonomiese saak". Die bestuur van waterbronne deur 'n owerheid word gewoonlik vereenselwig met 'n nie-optimale of selfs korrupte onbevoegdheid. Hier behoort die bekendstelling van mark beginsels om 'n waarde en nut op water te plaas dus 'n positiewe ontwikkeling te wees. Tog is dit ook duidelik dat die vereistes vir 'n effektiewe mark; alle agente is kopers en verkopers, 'n eenvormige produk, deursigtigheid in informasie, geen eksternaliteite, erkenning van besitreg, alle goedere en dienste is privaat goedere, transaksie koste is naby aan nul; nie volkome toepasbaar is op water nie. Die eenvoudige asook komplekse aard van water verhoed dat standaard markstelsel en beginsels van kompetisie eenvormig toepasbaar is. Water kan ook maklik gekategoriseer word as publieke goedere met gemeenskapsregte, wat dit dan onderhewig sal maak aan verskeie maatskaplike en omgewingsmaatreëls, hoë toetrede kostes, en logistieke probleme van die verskaffingsiklus. Dit is egter die vraag na water wat defineer dit as heterogene produk met huishoudelike gebruike vir beide persoonlike verbruik asook sanitasie, terwyl doelgerigte gebruike in landbou, handel en nywerheid ook spesifieke kwaliteite kan vereis. Hierdie werkstuk beoog om die faktore te defineer wat die bekendstelling van 'n mark stelsel vir water bestuur daarstel en ook beperk. Die uitgangspunt van hierdie studie was om maniere te vind vir beter ekonomiese waardasie van water en dit dan te kombineer met die fondasies van die omgewing, maatskaplike & gesondheidsmaatreëls, asook die toeganklikheid van basiese dienste aan almal.

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