Policies for Efficient Regional Water Management

Three conditions are necessary to guarantee efficient use of water: (1) that water be combined with other inputs so as to minimize cost; (2) that water be allocated among different uses and locations so as to maximize its net contribution to the net value of output; and (3) that water supplies and quality be developed to the point where the return from the last dollar invested equals the return available from alternative public and private investments. Least cost methods of production and possibilities for substituting other inputs for water are illustrated for thermal generation, irrigation agriculture, navigation, and industrial uses. It is difficult to allocate water efficiently among uses and over space and time because of inappropriate pricing of water and difficulties in transferring water rights. These lead to political pressures for excessive and premature investment. Most of these problems can be overcome through appropriate pricing and designing management institutions which are able and willing to consider all of the alternative solutions to water deficiency problems.