WATER INSTITUTIONS AND ECONOMIC INCENTIVES TO AMELIORATE MARKET AND GOVERNMENT FAILURES

At the macro level, the way water resources are managed results in major misallocations as well as quality deterioration. It has become apparent in many cases that current practices and policies are not sustainable, and that reforms are needed. The present paper focuses on some of these reforms. It starts by reviewing and analyzing the sources of the market failures as well as government failures in water resources management. Recognizing the inevitability and desirability of some form of public action in many circumstances, it seeks to identify forms of interventions that utilize, to the extent possible, individual or private incentives by providing the institutional and legal framework in which these incentives can best complement the interventions. Examples from various countries are provided to illustrate the feasibility and merits of the proposed reforms.