An Economic Perspective on Water Security

Abstract

Water security involves multiple interrelated policy challenges that economists often analyze separately. This article examines the issue of water security from an economic perspective, identifying economic causes and consequences of infrastructure financing deficits, water misallocation, and water risks. To help address these challenges, we review trends in defining and measuring water security and present an economic framework for assessing the costs and benefits of policies aimed at enhancing water security. We show that policies aimed at increasing water security to meet basic water needs, ensure more equitable water distribution, or reduce water risks rarely align with conventional measures of economic efficiency. We argue that water security requires strengthening and coordinating institutions to address multiple objectives and that these institutional arrangements are polycentric in nature, balancing decentralized decision-making with coordination across sectors and political borders. The issue of water security underscores why economists need to take institutions more seriously if they are to provide credible analyses of policy responses to water management challenges.