Economic Aspects of Urban Water Supply: Some Reflections on Water Conservation Policies

Hanke, S.H. (1982). Economic Aspects of Urban Water Supply: Some Reflections on Water Conservation Policies. IIASA Collaborative Paper. IIASA, Laxenburg, Austria: CP-82-091

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Abstract

Water supply planning has traditionally been carried out in two steps: first, water requirements are forecast; and second, water systems are planned to meet these requirements. This traditional approach served water planners well until the 1960's. Then costs began to increase dramatically but regulators failed to allow revenues to increase as rapidly. As a result, the traditional approach to water supply planning became inadequate. To reduce costs and reduce waste, planners began to consider water conservation policies. Moreover, some planners began to explore the merits of using an economic approach to system planning.

This monograph reflects my involvement in both the economic research required to develop a general economic approach to water system planning and the attempts to apply benefit-cost analysis to the evaluation of water conservation policies. With encouragement from Janusz Kindler, Chairman of the Resources and Environment Area of the International Institute for Applied Systems Analysis (IIASA), I have attempted to present, in a systematic manner, my reflections on my research and applied experience. The work was carried out within the framework of the project "Water Management: Modeling Techniques for Estimating Regional Water Demand and for Demand/Supply Integration" supported jointly by IIASA and the Stiftung Volkswagenwerk, Hannover, Federal Republic of Germany. I anticipate that these reflections will assist researchers and practical planners in developing integrated research programs on the economics of water supply and also in applying economic analysis to the practical problems that face water system planners.

The monograph develops the general principles required to apply the economic approach. The intent is to familiarize the reader with the economic way of thinking about water conservation. In addition, specific examples and numerical results are presented. Hopefully, this will allow the readers to gain an appreciation for the "how to" aspects of the economic approach to planning.

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