9: :nPolicy Research

WORKING PAPERS

Water and Sanitation

Infrastructure and Urban DevelopmentDepartment

The World BankMarch 1992WPS 879

ComprehensiveWater Resources

Management

A Concept Paper, . - » •

Peter Rogers

Issues that should be covered in the formulation ofcomprehensive water resources management policies.

Policy Research Working Papers disseminate the findings of work in progress and encourage ihc exchange of ideas among Bank suff andall others interested in development issues. "I'hese papers carry the names of the authors, reflect only their views, and should be used andcited accordingly. The findings, interpretations, and conclusions are the authors' own. They should not be attributed to the Worldits Board of Directors, its management, or any of its member countries. A I ^ C / & ("

Policy Research

WORKING PAPERS

Water and Sanitation

WPS 879

This paper—a joint product of the Water and Sanitation Division, Infrastructure and Urban DevelopmentDepartment, and the Agricultural Policies Division, Agriculture and Rural Development Department —is part of a larger effort to define a Bank water resources management policy. Copies of the paper areavailable free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact DanielleRanger, room SI 1-043, extension 31296 (March 1992, 18 pages).

The world is entering a period of intense compe-tition lor limited supplies of water for alternativeuses — in agriculture, in urban and industrialsupplies, for recreation, by wiidlife, for humanconsumption, and to maintain environmentalquality.

Manifestations of this competition and ourcurrent ability to deal with it can be observed inmany parts of the world. A large irrigationproject in India does not operate because waterhas been diverted to the rapidly growing city ofPune. In China, industries arc reducing theirproduction because of water shortages, eventhough they arc surrounded by paddy fields. InCalifornia, selenium salts leached by irrigationarc killing wildlife. Bank irrigation projects inAlgeria arc now competing with Bank urban

water supply projects for the same water — andmany proposed irrigation projects and mosthydro project proposals are on hold because ofenvironmental concerns.

Until recently, the approaches taken to waterplanning management by planners in the devel-oping countries and by analysts at the fundingagencies were, by and large, appropriate andadequate to the task at hand. The increasedcompetition for water, however, makes most ofthe project-by-project planning methods inad-equate.

Rogers discusses new approaches that areneeded to integrate water resource use amongdifferent users and across different economicsectors.

The Policy Research Working Paper Series disseminates the findings of work under way in the Bank. An objective of the seriesis to get these findings out quickly, even if presentations are less than fully polished. The findings, interpretations, andconclusions in these papers do not necessarily represent official Bank policy.

Produced by the Policy Research Dissemination Center

Table of Contents

1. Introduction 1

1.1 The Water Sector at the World Bank 1

1.2 The Concept Paper 2

2. Fundamental Concepts for Water Management 2

2.1 Water is a Unitary Resource 22.2 Scarcity of Water 22.3 Market Failure in the Economics of Water 3

2.4 Valuation of Water 4

3. Planning for Water Resources 5

3.1 Current Planning Approaches 53.2 Where Does the Current Approach Break Down? 63.3 How the Problems Can Be Resolved 73.4 Distinguishing between Generic and Region-Specific Issues 8

4. Generic Issues of Concern for the World Bank 8

4.1 Broad Sectorwide Issues 9

4.1.1 International Conflicts over Water 94.1.2 Linking the Water Sector to the National Economy 94.1.3 Water Sector Planning Methodology and Data

Requirements 94.1.4 The Political Economy of Pricing 104.1.5 Environmental Impacts of Water Development 124.1.6 Social Impacts of Water Development 134.1.7 Conservation and Recycling of Water 134.1.8 Host Country Institutional Reform 144.1.9 Role of the Bank in Education, Training, and

Information Exchange 144.2 Subsector Issues 14

4.2.1 Irrigation 144.2.2 Water and Health 154.2.3 Urban Water Supply and Wastewater Disposal 164.2.4 Rural Water Supply and Sanitation 174.2.5 Hydropower 17

References • 17

8

1. IntroductionThe world is entering aperiodof intense competition

over limited supplies of water for alternative uses inagriculture, urban and industrial supply, recreation, wild-life, human consumption, and maintenance of environ-mental quality. Manifestations of this competition and ourcurrent inability to deal with it can be observed in manyparts of the world. For example, a large irrigation projectin India does not operate because water has been divertedto the rapidly growing city of Pune. In China industries arereducing their production due to water shortages eventhough they are surrounded by paddy fields. In Californiaselenium salts leached by irrigation are killing wildlife.Bank irrigation projects in Algeria are now competing withBank urban water supply projects for the same water, andmany proposed irrigation projects and most hydro projectproposals are on hold because of environmental concerns.

Until recently the approaches taken to water plan-ning and management by planners in the developing coun-tries and by the analysts at the funding agencies were, byandlarge,appropriateandadequatetothetaskathand. Theincreased competition for water has, however, made mostof the project-by-project planing methods inadequate.New approaches are needed that will integrate waterresource use among different users and across differenteconomic sectors. Realizing that the present approaches todealing with these enormously complex and difficult issues

Policy Stwiy-fep_wj>gst tpjresolve themJThis paper is an

attempt to outline the issues which should be included in theBank's Policy Paper.

1.1 The Water Sector at the World Bank

The World Bank helps to fund water projects thathave broad impacts throughout the economies of develop-ing countries. Water is used for domestic and industrialpurposes. It is used extensively for irrigating crops, and is

a major resource to electrical energy systems both forhydropowergenerationandforcoolingthermal generators.It is essential to many transportation systems. Inland andestuarine fisheries depend upon adequate flows of highquality water in the rivers. Rivers, lakes, and groundwaterare also extensively used for the disposal of treated oruntreated wastewater, that itself has served to remove andtransport chemical or other wastes. Fresh water is used tostop the penetration of salinity into surface or groundwatersources of supply. Increasingly water access is becoming amajor component of both urban and rural recreation facili-ties. In many places large investments are required tominimize the consequences of naturally occurring floodsand droughts. The maintenance of a locality's fauna andflora is critically dependent upon access to water. All ofthese uses have either been funded, or are potentiallyfundable, by Bank resources.

The water sector is also a substantial portion of theBank's annual lending. For example, between 1984 and1988, out of a total lending of $83 billion, water projectsconstituted $10.6 billion, or 12.8% of the total. Irrigationand drainage accounted for $4.6 billion, hydropower for$2.4 billion, and water supply and wastewater $3.5 billion.No data are available for flood control, water transport, andriver and estuarine fisheries. A sum equivalent to 55% ofthe total expenditures for agricultural and rur^i develop-ment was spent on water projects. In many countries (forexample Brazil) water sector expenditures are as high as30% of total public expenditures.

Water is dealt with independently in each of theBank's regional bureaus and in its central departments.This situationhas sometimes led to inconsistencies inBankpolicy between countries or between water uses. Underconditions of water surpluses such inconsistencies are notnecessarily bad, given the wide diversity of the countriesand range of uses for water. Indeed, this is what the Bank'sown Operations Evaluation Department has found on themany projects for which it has carried out post-completionaudits (more than 140 irrigation projects by 1989). Irriga-tion projects, for example, performed quite well in the arid

regions in Europe, the Middle East and North Africa(EMENA) and Latin America, but less well in the humidtropics of South Asia, and quite poorly in sub-SaharanAfrica. However, the current competition for water inregions such as EMENA is becoming so severe that thehistorical performance may not be expected to continueinto the future without serious improvement of pre-plan-ning, and the African projects need special care to ensureadequate future performance.

1.2 The Concept Paper

Under conditions of water scarcity and with increas-ing scrutiny from environmental interest groups outside theBank and from the Bank's own internal auditors, the Bankstaff has realized the increasing costs of the lack of acomprehensive view of the water sector and is lookingforward toaBank-wide policy with respect to actions in thissector.

This Concept Paper is an attempt by an outsideobserver to take a synoptic view of the water problems inabroad perspective encompassing water in all its importantuses, and to indicate areas that should be emphasized in theBank's Policy Paper. This paper has tried to achieve abalance between discussing broad conceptual issues andspecific sectoral issues. Water resources is a very broadsubject, hence it is not possible, nor advisable, to attemptto cover everything within such a short paper. The goal hasbeen to provide discussion on the most important issues sothat their inclusion in the Policy Paper can be justified. Itis the author's opinion that there are a few simple conceptsand methodological approaches that could, if understoodand adopted, significantly influence the successful devel-opment of water resources around the world. This attempt

' at simplification should be taken in the spirit of Occam'sRazor exhaust the simplesTexpTa1iM6T&^^more complex ones.

Issues that are not discussed at length in this Concept/ Paper are the legal issues of water rights, development ofwater markets, privatization of facilities, development ofnew technology, and detailed sector-by-sector highlightingof problems and possibilities. To do justice to all of theseissues a book-length treatment would be required. Since itis the author's contention that the major problems withsuccessful development of water resources lie in the refine-ment of economic analysis, the other issues are not amajorfocus of this paper. Part 2 of the Concept Paper discussessome of the fundamental concepts underlying water man-agement, and Part 3 addresses the economic issues stem-ming from the fundamental concepts that cause problemsin pursuing Bank water policy. The emphasis throughoutPart 4 of the Paper is a practical discussion of issues that are

currently of widespread concern within the Bank and arelikely to be of great importance into the next century.

2. Fundamental Conceptsfor Water Management

There are a few fundamental concepts that underliethe theory and practice of water management.

2.1 Water is a Unitary Resource

Rain, surface water inrivers and lakes, groundwater,and polluted fresh water are all part of the same resourcebase. They are all one and the same resource, although indifferent manifestations, occurring in different parts of thehydrologic cycle. Unused surface water can recharge thegroundwater and, conversely, overpumped groundwatercan reduce the flows in the surface streams. Contaminatedwater can be purified by constructing wastewater treatmentprocesses or it can be recovered by the natural assimilativecapacity of the surface and groundwater ecosystems. Thus,the entire hvdrologic balance must be considered, not justparts of it. Auctions taken in one part ofthe system oftenhavesignificant impacts upon other parts of the system; theselinkages must be taken into account when assessing thecosts and benefits of specific actions.

Because water is a unitary resource there are oftenconflicts among users. The most common example is theconflict betweensurface andgroundwaterusers in irrigatedagriculture. Improvement of the efficiency of applicationof the surface water results in an immediate decline in theavailability of groundwater, Allocation decisions are alsofrequently ambiguous. For instance, water is often allo-cated to irrigation projects at low cost to the users whennearby urban areas are suffering serious water shortagesand are willing to pay high prices for water. As a result ofthese types of problems water use in all countries isproscribed by legal and institutional complexities. While itis evident that many of these institutional complexities canhinder economically efficient use of water, these controlsfirst arose in the first place because of the genuine problemsthat water raises for any politico-economic system. As thecosts of ignoring the unitary nature of the resource rise onewould expect to see the gradual easing of institutionalconstraints on development in the direction of more ratio-nal integrated use of the resource.

2.2 Scarcity of Water

The discussion about scarcity is usually intimately

bound up with the concepts of water as arenewable or non-renewable resource. If it isrenewable.how can we ever runout of water? Certainly in many arid or semi-arid zones,people are currently experiencing shortages of water. Partof this problem has to do with the fact that under earlierhistoric conditions we were able to sustain the populationsof cities and regions, even under relatively arid conditions.However, with the growth of population and income thedemands for water seem to be overwhelming our techno-logical capability to supply it. Under these conditions waterscarcities and conflicts over water use begin to appear. Thecost of supplying additional water to water-short areas isalso increasing. Asaresult it becomes increasingly difficultto supply the same amounts of water to users at the old lowprices. The Malthus-Ricardo theory of resource scarcityseems to be working exactly as predicted: scarcity ofresources limits economic growth, and ultimately brings itto a halt. It is no surprise that this theory earned economicsthe sobriquet of "the dismal science."

Modem economists define water scarcity slightlydifferently, which allows for away out of this dilemma: theneed for water has to be expressed as a quantity and a price.This is called the "economic demand" for water and bothquantity and price must be specified. In the current eco-nomic mpdelsresgurces do not ' 'run out/ ' As the quantitydemanded increases new sources will be tapped, at thesame or higher costs, and/or the price will rise, restrainingwEgteagh.user wjll de.MP tn pynftas* This is essentiallya self limiting process. Clearly, if a resource base is fixedand the consuming population increases, something has togive. This will be either the price or the quantity of theresource used. However, even this system would ultimatelybe forced to a halt by population or economic growth. Themagical ingredient that enables the economic system tocontinue to grow is the existence, at some reasonable cost,of substitutes for the scarce resource. Although there is nosubstitute for water in sustaining human and animal life,there is an almost infinite supply of sea water, which can beconverted at a cost of energy into fresh water; then energy,or the capital to access the energy, becomes the limitingresource. Similarly,politicalboundaries,management skills,or human labor could limit the availability of water.

Part of the problem of dealing rationally with waterscarcity is the different perceptions that various groupshave about how close we are to reaching the resource limits.For example, in a study for the Bank, Falkenburg et al.(1990) claimed that some countries (Israel, Jordan, SaudiArabia, Syria, and Yemen) were very close to being unableto supply their populations with the minimum neededamount of water (500 cubic meters per capita per year).However, others looking at the samedataseemanypossibleadjustment mechanisms, which include recycling, reduc-

tion in agricultural use, changes in population policy, andthe reclaiming of additional brackish water. Has water beena significant limit on economic growth in any of thesecountries? How will each country address the future of thisresource? Has water been priced out of the reach ofsignificant portions of the populations? What accounts forthe fact that in many other countries with much larger percapita quantities of available water the per capita water useis lower? On closer inspection the "water barrier" of 500cubic meters per capita per year does not appear to be a realbarrier in the Malthus-Ricardo sense. The idea that we arerunning out of water (Postel, 1990 and others) cannot betrue globally, and even in specific water-short countriesthere is little doubt that water will always be available atsome reasonable price, provided those countries followsensible water policies. The definition of scarcity in nqn-economic terms is a distraction that can lead to majormisallocations of the water resource^The rapid disappear-ance of the' 'oil crisis'' once limited marketresponseswereallowed to take place should^ be_b^rnejnjnindjby_watwplanners^

2 3 Market Failure in the Economics of Water

The most use ful economic literature on water is builton neo-classical economics. Much of it explains whichassumptions and theoretical constructs deal best with as-pects o f 'market failure,'' that is, when the classical modeldoes not strictly apply. Eckstein (1958) mentions thefollowing sources of market failure inherent in waterresources as the most important:

1. Increasingreturns-to-scaleontheproductionsideareprevalent in water projects. For example, inlandwaterways and municipal water and wastewaterservices are natural monopolies because of the largeeconomies of scale in the provision of the infrastruc-ture. Many water-related investments tend to be verylarge in order to take advantage of these economies

2. Externalities due to physical interdependence amongproduction processes are inherent in many wateractivities. The externalities of both water quantityand water quality are experienced in the spatial sensebetween upstream and downstream users, and in atemporal sense between different seasonal releasesof stored water, common pool effects on groundwa-ter, and the export of pollution.

3. The classical model assumes that the income distri-bution in a given setting is optimal. However, indevelopment work it is rarely accepted that theincome distribution in a particular country is the best

one, and many water projects are specifically aimedat changing a mal-distribution of income.

4. When not all producers are small relative to themarket, the marginality conditions for the existenceof economically efficient solutions are violated.When government is involved it is often as the onlyproducer in the market. In this case the water suppliedwill make large changes in the local price of water,thus undermining the assumption of marginalityinherent in benefit measurements.

5. The resources are not necessarily mobile. Typically,capital resources are relatively mobile but laborresources are not Pockets of poverty and unemploy-ment exist and many water projects (like the Tennes-see Valley Project, TVA) were originally designed toaddress this lack of resource mobility. In additionrestricted water rights often impede the ease oftransfer of water from one use to another.

The literature since Eckstein shows how each ofthese market failures can be compensated for in waterresources planning. It is now the general opinion thatcareful application of neo-classical principles can dealwith the market failures most likely to arise in waterinvestment analysis. For example, increasing returns-to-scaleandmonopoly pricing can be dealt withby someform of Ramsey pricing. Externalities can be dealt withby expanding the definition of the system t o ' 'internal-ize the externalities.'' The lack of mobility of resourcescan be accounted for by suitable shadowpricing, and theincome maldistribution can be dealt with by addingconstraints on the distribution of benefits. The adjust-ments themselves lead to some loss in the overall• 'economic efficiency'' implied by the classical model,but the loss is believed to be small relative to the broaderimprovement of solutions. Brown and Sibley (1986*)discuss various techniques of improving utility pricingwhich come close to the economically efficient solutionand which, at the same time, are closer to the practicalmethods useable by utilities.

2.4 Valuation of Water

Allocation of water among the myriad conflictinguses presents a major task to governments, allofwhich takeresponsibility in some degree for regulating access towater. It is difficult to assign unambiguous economicvalues to many uses, and hence these may be implicitlyovervalued, undervalued or completely ignored in thedecision-making process. Rogers (1986) gives many ex-amples of the problems that arise from undervaluing water.Many of the problems of valuing water stem from themarket failures mentioned above. In particular, the exist-

ence of externalities and the lack of mobility of resourcesmake finding the maiket price quite difficult. In a perfectlyfunctioning economy envisaged by the classical economicmodel "price equals value," and the cost of providing agood, after allowing for payments to all of its factors ofproduction, wUlpreciselyequalits marketprice. Asaresultof this elegant solution one only has to establish " cost" toestablish "value."

Unfortunately, many water resources planners forgetthat simply equating cost with value only holds true in aperfectly functioning market economy. In all other cases(that is almost all cases) care must be taken not to confusecost with value. What then is the "value" of water? Theanswerappearstodependupon "to whom "andfor "whichuse." Drinking water is obviously valuable and becomesincreasingly so as the amount available decreases. A glassof water could be infinitely valuable to a person dying ofthirst in the desert but not very valuable to a woman livingalone on the banks of a pristine river. In the second case thewoman would only be willing to pay the cost of somebodygoing to the river and fetching the water for her. She wouldbe unwilling to pay more because she could go and take itherself. So the value in this case is the cost of obtaining thewater. Now, if there was a farmer irrigating land alongsidethe river, how much would the water be worth to him? Ifthere is enough water in the river so that the woman canhave as much as she can drink just at the cost of obtainingthe water from the river, then obviously the farmer can takeas much as he wants at the cost of obtaining the water.Clearly, the farmer would also value the water at the costof obtaining it. So far, so good; cost equals value.

However, such bucolic settings no longer exist in themodern world. Typically there are many users of theresource apart from the housewife and the farmer. At somepoint in time the use by one person will start to interfere withthe use by another. At that point the water is said to have an"opportunity cost." Since the continued abstraction by oneuser reduces tne amount available to another there is a lossof the opportunity to use the water by one user. This lostopportunity costs the affected user the amount he valuesthese units of water. At this point the ' 'value'' of the watershould reflect the willingness-to-pay of the user who islosing water. If for some institutional reason the housewifehas to cut her consumption of drinking water, then theopportunity cost to society of this allocation of water awayfrom her is her willingness-tc-pay for water. If the alloca-tion of the water shortage were the other way around, therelevant opportunity cost would be the farmer's willing-ness-to-pay for irrigation water.

If the question of how to allocate the water were leftto an outside party, for instance, the World Bank, then thatparty might ask how society would best benefit from the

allocation. One way of answering this question is to applythe logic of social choice theory embodied in modemeconomics, which allocates the water to the use with thehighest value.

. sumersofwaterisafairlYwelldevelQPedfieldiiiftecQnom-•*&[ ics andean be easily adapted in many water conflict,

situations to establish estimates of the opportunity cost ofwater. Unfortunately, many economic studies of water useignore the opportunity cost of water and only reflect theactual costs of obtaining "tEe~water itself. As mentioned

. above,ifthere were wellnsstablishedmarkets forwaterthenthe market price would itself reflect the opportunity cost ofwater. HowevsLJa most countries such mnHrgtg Ho not

tu\ one is Iftft to estimate the opportunity f.nst in_

foriiract ways.

The opportunity cost of water is only zero when thereis no shortage of water. In evaluating water investments thevalue ofwatertoauser is the cost of obtaining the waterplusthe opportunity cost. Ignoring the opportunity cost part ofvalue will undervalue water, lead to failures to invest, andcause seriousmisallocations of the resource between users.The opportunity cost concept also applies to issues of waterand environmental quality.

3. Planning for WaterResources

The management imperativesofwater are embeddedin its nature as a scarce resource that is often treated as apublic good. External effects occasioned by water use alsoinvoke important economic imperatives. Property rightsand externalities raise political and financial imperativeswhich influence the choice of ways to price water to pay forthe public supply of it. To appreciate fully water policyoptions and how they are evaluated, it is necessary tounderstand howeconomics is used andmisusedinthe waterarea. Even though politics ultimately controls water re-source planning, the discussion is usually framed in eco-nomic terms, and the ability to understand and manipulatethe economic analysis may significantly improve the finaloutcome. Hence, a significant part of this Concept Paperexplores the possibility of improving the economic aspectsof planning. The attention devoted to e conomics should notbe taken to mean that the institutional and technologicaldimensions are unimportant, but that in the judgment of theauthor the pay-offs from improving the economic dimen-sions are currently larger than those from other areas ofconcern.

3.1 Current Planning Approaches

Waterresourcesplanning hasreceived a large amountof attention from economists and planning professionalsfor many decades. Based on the Flood Control Act of 1936,federal agencies in the United States, for example, werecharged with devising economic criteria to ensure that onlywaterprojects for which the' 'benefits exceeded the costs''would be implemented by the federal government. Thispolicy led to major research that culminated in the 1960s infundamental works by Eckstein (1958) and Maass et al.(1962) at Harvard University, Hirshleifer, Milliman andDeHaven (1960) at the University of Chicago; and Kneeseand Bower (1968) at Resources for the Future in Washing-ton, D.C. The finishing touches with regard to dealing withenvironmental quality were in place by the end of the1970s, with works by Dorfman and Dorfman (1972) andBaumol and Oates (1979). In addition to these books thereare literally hundreds of other excellent texts explainingmany of the practical aspects of the detailed analysis ofbenefits, costs, and technology choice for each possible useof water. While this was taking place in the water resourcesfield, the Bank, UNDP, and many other funding agencieswere developing reliable methods for economic appraisalof investment decisions in general. Outstanding examplesof this literature are Little and Miirlees (1974) and Squireand van der Tak (1975), sponsored by the World Bank, andDas Gupta, Marglin, and Sen (1972) and the Guide toPractical Project Appraisal(1978),sponsoredbythe UnitedNations Industrial Development Organization (UNIDO).These works are the basis for the current evaluation ofinvestments in the water sector.

The literature provides sound methods for planningwater resources at a river basin level and at the level ofindividual projects. However, since most of the methodolo-gieswere developed in western industrialized nations, they

~py little attention to planning for water resources in a _macro or intersectoral way.

State-of-the-art economic project analyses are car-ried out routinely by the Bank staff. For example, benefit-cost analysis is carried out on irrigation assessments and theproject is recommended only when a suitable internal rateof return (IRR), or another index such as abenefit-cost ratiois achieved. Recently the choices have also been condi-tioned upon not causing' 'too much'' social or environmen-tal harm. For projects such as urban water supply orsewerage, where benefit calculation is very difficult, themarginal costs of providing the services are computed andcomparedtootherwaysofproviding the same services. Forboth of these types of project analysis, care is taken tocorrectly shadow-price the inputs and outputs. However, inorder to decide whether to spend money on irrigation

_"

instead of on flood control, or on other investments outsidethe water sector, the rules for project analysis noted aboveneed to be bolstered by additional assumptions and theory.In the theory, pricing of the resource is critical to the correct

\ppraisal of the project and the correct implementation.o Pricing has a threefold role in water policy. First, the price

5* c can be set to recover the cost of the investment from the(V J^eneficiaries. Second, increasing prices tends to ration

water by cutting"uneconomical consumption. Price in-creases cut the demand for water by moving up the demandcurve, which is the effect most decision makers look forwhen pricing policy is advocated. The third aspect ofpricing, and the one most frequently overlooked, is that ofincreasing the supply. When the price is higher, supplies ofwater from more expensive sources become available.

Price is also an integral part of the definition of"scarcity." The issues of pricing and cost recovery are afundamental part of any approach to deal with the modernrealities of water planning. The fact that pricing has notbeen rigorously applied in the past, and that the currentprices of water are still generally quite low, is an indicationthat scarcity is a relatively new phenomenon. It also givesconfidence that, at least for the next decade, moderate priceincreases will solve the water scarcity problem. Pricing andSosfrecovery are an integral part of the resolution to manyof the water issues discussed below.

3.2 Where Does the Current Approach Break Down?

The Bank's Operations Evaluation Department hasshown that current planning approaches worked fairly wellwhen the competition for water was less acute. The samemethods should also work under the new conditions. Thatthey are not working is caused by a lack of attention to thecorrect implementation of the methods. For example, evenif correctprices are computed in the appraisals, they am nni

usedby the borrowing governments in implementing theprojects once funded. This fact leads to overconsumptionof water by some users and artificial shortages for others.There are two major areas where the current approachseems to be in trouble:

1) Establishing and using the concept of opportunitycost of water in different sectors of water use. Since themethods for evaluation are applied mainly to project-by-project appraisal, consideration of the intersectoral natureof water use is neglected. Therefore, perfectly well ana-lyzed Bank irrigation projects in Algeria, for example, findthemselves in direct conflict for the same water with other,equally well prepared Bank projects for urban water sup-ply. In such cases the relative marginal benefits of addi-tional investments in water must be carefully comparedwith those of other sectoral investments. Other resource

sectors, such as energy, have well developed methodolo-gies to relate sectoral and macro plans. Most of these weredeveloped in response to the oil crisis of the early 1970s. Itis now possible for energy planners to show themacroeconomic consequences of regulation of, and invest-ments in, various energy sources, and, in the other direc-tion, to estimate the consequences of shifts in macro policyon demands and supplies for energy by various sectors. Thishas not been done in the water sector.

The role of water investments as infrastructure ser-vices which serve as both intermediate goods and finalgoods is also often overlooked in water planning. So forinstance, Ingram (1989) expresses concern that waterinfrastructure may suffer under-investment as a resultof the Bank's structural adjustment programs for variouscountries.

A fundamental piece of information missing in mostwaterplans is the opportunity cost of water. Adding"theopportunity cost of water to its marginal cost of supply andcomparing this withits current price indicateshow efficientcurrent water use is and how efficient it could be. In orderto estimate these numbers it is necessary to have some formof intersectoral comparison of value or willingness-to-pay,hence the need for a strong policy directive in the Bank'sPolicy Paper to establishmethods to evaluate water invest-ments in an intersectoral context.

2) Incorporating social and environmental concernsdirectly into planning. Social and environmental impactsof Bank projects are increasingly a source of contentionbetween the Bank and environmental interest groups indeveloped countries. It would be possible for the Bank toundertake economic analyses of the environmental im-pacts of water projects more diligently than has been donein the past. There is no doubt that this is a difficult task;nevertheless, there isnowalarge literature dealingwiththeeconomic impacts as lower bounds on the total impacts ofa project.

A society that allows waste dischargers to neglectoff-site costs of waste disposal will not only devote-too few resources to the treatment of wastes but willalso produce too much waste in view of the damagesit causes. (Kneese and Bower 196S).

As use increases, the public goods nature ofwater andthe pervasiveness of externalities in water use lead inevi-tablytoanincreaseofpollution.Inthelate 1960s and 1970sthe public perception in the developed countries was thatthe environment was being "over-polluted." The exter-nalities implied in water pollution were first extensivelydiscussed by the Resources for the Future group in the early

i ;i

1960s. The above-cited bookby Kneese and Bower (1968)is still a leading text on the economics of water quality.

The concemofeconomists analyzing water pollutionis with "market failure." In particular the issue of how tointernalize the externalities has received most of the atten-tion. At the most obvious level it would seem that if theeffluent could be correctly priced, then industry and otherpolluters could be taxed by just this amount and problemwould disappear - the correct amount of pollution wouldbe obtained, and if this were considered too large then theeffluentpricecouldberaiseduntilasatisfactorylower levelof pollution was achieved.

Coase (1960) showed that externalities by them-selves do not lead to economically inefficient solutionsprovided that the polluters and the people being affectedcan freely and inexpensively negotiate with each other.Coase claimed that the responsibility for damages is areciprocal one, with the affected party taking steps to avoidthem as much as the perpetrator takes steps to avoidproducing them. Economic efficiency is achieved whenexternal damages are borne by the party that can mostcheaply repair them.

Hufschmidt and Dixon (1986) have extended envi-ronmental economics to the issues faced in developingcountries, particularly with respect to water projects. Pa-pers by Devousages and Smith (1983) and by Fisher andRaucher (1984) show how contingent valuation methodscan be used to evaluate the benefits (and damages) associ-ated with a wide range of environmental impacts thathitherto had been thought to be non-measurable. In thePolicy Paper the Bank should pursue this line of thinkingand lay out the appropriate methodologies for assessing theeconomic dimensions as well as the non-economic dimen-sions of environmental deterioration.

3.3 How the Problems Can Be Resolved

There are two possible, and not mutually exclusive,explanations of why problems arise in the way waterresources are planned, appraised, and implemented.

1) The accepted economic principles are adequatebut the application is inadequate.

The appraisal approaches used at the Bank and atother funding agencies are based upon the generally ac-cepted principles outlined voluminously in the literaturereferred to above. The application of the principles jsflawed because, when faced witffecbnomic i

,water itseir must De priced at its opportunity cost._This istypically not done and leads to serious misallocation of

resources between different uses of water. For example, inthe EMENA region the opportunity cost of water in themunicipal sector is at least two to three times as high as themarginal value of irrigated agricultural production percubic meter of water for all crops except some vegetables(tomatoes and cucumber). However, when the irrigationprojects are evaluated by themselves, without consider-ation of the opportunity cost of water in other sectors, theyappear to have acceptable Internal Rates of Return (IRR).

Similarly, the externalities due to environmentaldamages are not integrated into the appraisal of projects.The economic principles are clear, but little attention hasbeen devoted in the past to evaluating the damages andtherefore they tend to be overlooked in the analysis.

2) The theory needs refining.

No theory is perfect, and so it is with the theoreticalapproaches to water resources management. The relevantquestion is how the imperfections in the theoretical under-pinnings lead to unacceptable outcomes from the point ofview of the Bank, other funding agencies, and govern-ments. There are several assumptions about the theory thatcause difficulty in water planning, but there are alsoapproaches to softening or eliminating these market fail-ures from the conceptual model. Three areas stand out ascausing more trouble than others and, hence, may needmore refinement of the theory.

A. The difficulties associated with makingmacroeconomic allocations between investments in waterresources and other economic sectors. The pervasivenessof water use throughout the economy may partially explain ^the first problem, but other sectors, including energy, $,radiate similar pervasive connections throughout the/-^ Neconomy and society. Water planning has been an integral 'Hwpart of governmental planning for much longer than other T_resource sectors. Hence, large and powerful interest groups <are fully cognizant of their stakes in planning. In most —countries it is not of particular concern that the waterplanning and investments be balanced with other sectoralactivities; indeed, the ideaof such balancing is threateningto groups with a vested interest in water investments andmanagement. The development of reliable planning meth-odology to relate water sector plans to the overall macrodevelopment of a country is a generic problem that shouldguide investments and other Bank water activities.

B. Dealing with externalities directly in the analysis(internalizing the externalities). Dealing with externalitiesdirectly in the appraisal methodology is another importantrequirement. The theory and methods for doing this havebeen developed and many environmental consequences

can be adequately treated within the existing benefit-costmethodology. These methods have only received sporadicapplication in acSal project evaluation. Fisher and Raucher(1984)Ireporfon severaTsuch studies but additional work isneeded to develop this methodology for the types ofprojects supported by the Bank.

C. The political economy oftariffsetting in the watersector. The political economy oftariffsetting is extremelyimportant and has toalarge extent been neglectedby waterexperts. This is particularly true in the cases often encoun-tered when there are economies of scale associated with theinvestments. The canon of price theory is marginal costpricing. In other words, set the price at that point where thedemand and the supply curves intersect. Unfortunately,establishing the marginal price for many water uses isdifficult because of the characteristics of water that makeits supply a natural monopoly. The existence of economiesof scale ensures that those who first entered the market willalways be able to underprice and drive out any potentialnewcomers. They can decide on their desired profit leveland set the prices accordingly. This fact has been recog-nized for a long time in the area of municipal water andwastewater treatment and the suppliers have been regu-lated, typically by publicutility commissions. Meier (1983)showed that there are at least five different ways ofmeasuring marginal cost under these conditions, eachresulting in a different estimate of the marginal cost. Inpractice good estimates can be obtained for most waterinvestment projects with either of the approaches currentlyused in Bank appraisals: long run marginal cost (LRMC),and average incremental costs (AIQ.

JTnfqrtunatglyjttQst regulatory commissions hav$tendedtotatoBa^pricing based only: uneeds tojV

I Traditional rate-setting methods, employed by stateI regulatory commissions as well as local government/ agencies, appear to have produced a situation ofI rapidly deteriorating water systems, both rural andI urban, characterized by aging capital facilities and

under-maintained water systems. (Mann, 1981)

This stance isnot appropriate in situations where ihsutilities are facing mcreasinfljnaai^inal_ggstsjallJhejbgstprojects have beenjbuiltandnowit becomes increasinglydifficult to supply the same amounts of waterjtf the

Economic theory provides "second best" pricingalgorithms for such circumstances. However, according toHanke and Davis (1973) even these lead to problems forutility managers. Therefore they suggested the need todevelop "third best" pricing methods, which would bemore responsive to the political dimensions of waterresource pricing. In a study of water conservation in Perth,Australia, Hanke (1982) outlines how to estimate economi-cally efficient choices considering the resource cost to theutility, the resource cost to the consumers, and the usefulconsumption foregone as a result of a particular conserva-tion policy. Interestingly, when he compared two pricingpolicies (marginal cost pri , jng" d i ^ ^

looking accounting stance is appropriate. If thispolicy werepursued, the emphasis on revenue requirements of utilitieswould be replaced by establishing adequate future invest-ment funds.

pjTCjngVwUh_ftree non-price ooUciesTleakape j g jmetering, and mandated water .restrictions) he foundJEatthe most economically efficient was JejtogaxQ^gor^oF15We3T>ymeteruigj^^tEeoffierpolicies hadnegative benefits. This is an eloquentreminder that rationing by pricing is not always the mostefficient approach. In order to find out, however, it isimperative to carry out analysis at the level of economicsophistication applied by Hanke.

3.4 Distinguishing between Generic andRegion-Specific Issues

The Bank has operations in 152 countries, aggregat-ing them into four major regions. To formulate Bank policywith respect to water it is essential to distinguish betweenissues that are generic to the management of water as aresource, and others that are specific to individual regions.For example, the difficulty of making' 'correct'' allocationdecisions between different uses or users is generic to wateraround the globe, but the relative importance of irrigationvaries by climatic zone and water availability. The genericissues are the ones for which the Bank needs to evolveinstitution-wide policy; the remaining issues can be left tothe regional departments.

Fourteen generic issues are briefly described anddiscussed below; nine as broad sector-wide issues (section4.1), and five as sub-sector issues.

4. Generic Issues ofConcern for the World Bank

In the water planning community there are severalconnections of' 'water and . . . " which are taken by manyas paramount relationships that brook no questioning. Asargued below, the Bank's Comprehensive Water ResourcesManagement Policy Paper should take a close look at such

sanctified linkages as water and health, water and food,water and equity, water scarcity, irrigation efficiency, andso forth, leaving no assumption unexamined.

4.1 Broad Sectorwide Issues

4.1.1 International Conflicts over Water

Worldwide there are hundreds of rivers shared bydifferent nations (54 just between India and Bangladesh).In many cases serious bilateral ormultilateral conflicts overwater have arisen. Hie current dispute between Turkey,Syria, and Iraq over the Euphrates is a good example of suchsituations. International law on transnational rivers isweak; itis essentially leftup to the goodwill ofthe upstreamriparian to settle problems amicably. Several decades ago,the World Bank was a major player in one of the mostsuccessful conflict resolutions; the Indus Basin settlementbetween India and Pakistan.

The Bank should maintain its rule of not makingloans for a project that is not acceptable to a country'sneighbors, but it should also consider establishing a nego-tiating unit to help countries deal with these issues. In manycases the provision of a neutral corner and unbiasedinternational expertise could make it politically easier forcountries to explore their water conflicts with neighbors ina non-threatening situation, relatively free of inhibitingpolitical limelight and implicit threats to national sover-eignty. Although regrettably not fruitful to date, the Bank'swork over many years on hydro-electricity conflicts be-tween Nepal and India is an example of such an approach,and a credit to the Bank. Easing some of these disputeswould open up many new investment possibilities forconstructive multi-purpose use of internationally sharedriver basins.

4.1.2 Linking the Water Sector to the National Economy

It is a paradox that although water resources haveprobably received more analytic attention than any otherkind of public investment, there has been little attentionpaid to relating the water sector to intersectoral or macroallocation decisions. This lack of analysis should be of greatconcern in countries such as Brazil where 30% of publicinvestment is in the water sector.

Other resource sectors such as energy have welldeveloped methodologies to relate sectoral and macroplans. The development of reliable planning methodologyto relate water sector plans to the overall macro develop-ment of a country is a generic problem that is of majorsignificance to guiding investments and other Bank wateractivities. In a paper with Hurst (Hurst and Rogers, 1985)the author found in the literature only a few attempts to do

this. Hurst and Rogers built an economy-wide model forBangladesh which incorporated a detailed water sector andits macro economic linkages. When the model was run, theoptimal solution was radically different from the optimalsolution predicted when the components were run sepa-rately. In the overall model there was a strong bias againstproducing an export crop because:

The reason for this is that the growth of the non-agricultural sectors depend upon the import of rawmaterials and intermediate goods. If the foodrequire-ments ofthe rapidly growingpopulationmust be met r>withfood-grainimports(foragivenlevelofimports) *less raw materials and intermediate materials can beimported. Consequently, non-agricultural sectorsmust grow at a slower rate, and in order to meet areasonable level of national growth, the agriculturalsector must grow rapidly.

While this particular model was never used in making aplan, it does indicate that quite different policy implicationsarise when the macro linkages are explicitly considered.Additional research in this area would help improve thequality of water investments in all sectors.

4.1.3 Water Sector Planning Methodology and DataRequirements

At the next level down, within the water sector thereare a plethora of water planning tools. One of these hascome to be called "multi-objective planning." Althoughconceptually satisfying, planning theoreticians have madethe approach unnecessarily complicated with its own no-menclature and dedicated computer software. In realitymulti-objective planning is based upon the concept ofconstrained optimization. One merely optimizes one ob-jective, for example, national economic growth, whilesetting other objectives, such as environmental quality, asconstraints upon the system. The Bank itself has alreadybeen a major contributor to the development of "multi-objective planning'' through its modelling work in Mexicoand Pakistan. The issues of equity, food self-sufficiency,and health discussed below are typical ofthe issues whoseopportunity costs can be established by such methods.There is no doubt that this approach should be taken in anyplanning study. Whether specialized software or moregeneral purpose models such as linear and non-linearprogramming or simulation models are used, the differentversions of this tool yield essentially the same results, andlike all analytic approaches should be employed with agreat deal of caution.

The literature on water resources is also heavilyinfluenced by the ideas of comprehensive multi-purposeriver basin planning. This has historically been the ap-

v

pioach taken in Western Europe and the United States.Although intellectually satisfying, it is not dear whether itis the best approach to practical problems. It is helpful forthe physical aspects of rainfall and run-off but much lesshelpful from the point of view of political jurisdictions andeconomic markets. In the United States it has since beenabandoned by allmajoragenciesinvolved in national waterplanning. Today agencies allow the specific problem todictate the unit of analysis. With increasing concern forbroader problems such as environmental quality, the ideaof analyzing "problem-sheds" rather than river basins isgaining ground A recent book by Major and Schwarzshows how river basins can be building blocks in largerproblem-sheds. The Bank will have to examine closely thetypes of issues faced by its clients before recommending aparticular planning approach.

At the practical level, however, little planning of anykind seems to have been applied consistently across wateruses in the economy. For example, in many places the usesof water are still examined separately on a project byproject basis. Thus, in Algeria it ispossible to find examplesof carefully planned irrigation projects alongside carefullyplanned urban water supply projects, with no way ofreconciling the conflicting demands that both have for thesame water supply. In Brazil there was surprise when theintroduction of a tariff on wastewater discharges lefl tolarge decreases in revenue to the water supply utility,almost leading to its bankruptcy. In these cases the unit ofanalysis wasnot large enough to capture the external effectsof policies dealing with individual components.

There is a need to ensure that appropriate models of thewater sector be included in any project appraisal. The unitof analysis must be large enough to ensure that most of therelevant externalities are captured in the analysis. In irriga-tion projects, ground and surface water as well as drainagemust be analyzed as one unit. Urban water supply cannotbe divorced from wastewater disposal and its downstreamimpacts. Water diversions from rivers must consider alter-native in-stream uses of the same water for navigation,fisheries, downstream users, and the maintenance of streamecosystems. Well established methods using mathematicalprogramming and simulation models should be required asa prerequisite for project appraisal in such cases.

In any policy study the quality of the data useddetermines to a large extent what conclusions can bereliably reached. However, there is a mind-set, that alwayslooks for more and more data and more and more completecoverage of a region or basin. Geographical informationsystems (GIS) are currently very popular. Some of thepractical problems encountered in the use of such systemsshould be examined. For instance, many of the current

systems have been devised with little or no idea about howthe information is to be used. This results in over-collectionof some types of data and under-collection of others. Theexperiences of GIS users to date have not been uniformlyhappy. Most systems concentrate solely upon physical andscientific data, and there is little orno coverage of importanteconomic facts. Although many of the economic data donot need to be collected according to detailed geographicdistributions, the economic realitiesmay be as important asthe physical data that do, and may be critical to understand-ing the meaning of the physical givens. More attentionshould also be paid to the statistical variability of the data.Currently available methods to establish statistical reliabil-ity should be insisted upon in all data analyses and becarried over into the analyses of particular investmentdecisions.

One issue that ties the methodology and the datatogether is the issue of "uncertainty." Not only is itimportant to develop and use reliable data but it is alsoimperative that the planning methods used elucidate theuncertainty regarding the planning decisions. All too oftenin the water resources area the bulk of the analysis is aimedat the consequences of hydrological uncertainty when, asdemonstrated by James, Bower, and Matalas (1969), thelargest part of the uncertainty in the implied decisions stemsfrom the economic parameters which typically receivelittle stochastic evaluation.

In its Policy Paper the Bank should make a seriouseffort to show what are realistic expectations about the datathat may reasonably be gathered, and the levels of reliabil-ity that can be achieved by the use of these data.

4.1.4 The Political Economy of Pricing

Apart from certain aspects of religious and healthsignificance, most people in every day use do not regardwater as an end in itself. It is a commodity like' ' ships andshoes and sealing wax," consumed directly or used as aninput to other processes. Empirical observation shows thatin Boston as well as in Beijing, if the price of water isincreased, consumers will use less of i t In other words,there is a "willingness-to-pay" for water that is not anabstract economic concept depending onelaborate theoriesof private property, but rather is a reliable behavioral traitof consumers of the products. The same behavior can beexpected in Kansas and Kathmandu - and is a good basisfor assessing the economic demand for water. (Water hasadownward sloping demand curve.) We can expect humanactions to meet demand to be similar in widely differentlocations. The most accessible water for human use is thecheapest to develop, the next most accessible costs a littlemore, the next yet a little bit more, and so forth. Very soon

10

one observes an upwardly sloping "marginal cost" curvethat depends upon nature, not upon theory. Based upon,these two observed phenomena of willingpftaHp-paY JHMlincreasing marginal costjeurves. a good set of practicalrules can be derived for helping to decide upon how muchto invest in developing a particular water supplyT""

Although most people perceive water in this way atan individual level, the same individuals treat water differ-ently when they gather collectively to make decisionsabout future uses of water. This contradiction may be dueto the common social misperception of water as a "purepublic good" which belongs to "everyone" at the sametime, with a right of access for all. As a result it is

customary to treat water as a free good when it is infact anything but free. People come to expect that itis their right to take (and to waste) as much water asthey want. (Baumol and Oates, 1979).

There is clearlyaparadoxhere, since it is obvious thatfor many uses (for example, irrigation and municipalsupply) water has all the properties of an exclusive eco-nomic good—just the opposite of a "public good." AdamSmith was one of the first to define a ' 'pure public good'':once the good is provided, it is not possible to excludeanyone who wants to take advantage of apublic good fromusing it, and the consumption of the public good by any one

J&tonsumer does not impede the consumption by any otherpotential consumer. At the other extreme, a ' 'pure privategood'', such as food purchased from a market, can be andusually is the exclusive property of the owning individual;his or her consumption of the food absolutely preventsanyone else from consuming it. Water, like many othergoods, falls somewhere between these two extremes. It has' 'pure public good'' aspects when it is left in a scenic river,but even then too many people using the scenic river willdestroy some of its value for other participants. It has' 'exclusive economic good'' features whenitis evaporatedby farmers irrigating their crops for profit in a marketsetting.

It is the in-between cases which tend to predominatein the academic works on water and which confuse theissue. The question as to who has access to water becomesvery important in determining how water is defined, andthis definition in turn hinges upon the different doctrinesgoverning water rights. In order to use water more effi-ciently it may be necessary to codify the water rights.Markets are based upon a system ofproperty rights to scarcegoods and the right to exclude other users of the resource.A private water market can only exist if property rights aresecure and can be transferred. However, water law andwater rights differ radically from country to country, and

sometimes even within countries and between differentwater uses. It is hard to draw from the gamut of individualcases to provide a general theory, other than to say that^for^many modern market-incftntivft ^vstems tft wprjf. fre/ai* 'thejftged for a much clearer demarcation ofproperty rights A,to water use than ofteiTexists. At any level, the definition ,ofproperty rights to water is very difficult in the face ofwater's sacral quality in many societies, its essentiality tolife, and its pervasive externalities. As aresult, alarge bodyof law has grown up around water in almost every country.

Waterpricing, therefore, is not a task to be left solelyto economists. The, political, legal, and social dimensionsare extremely important and emphasize the need for a' 'political economy'' of water pricing.

1. Pricing

Three important concepts tend to get confused in thediscussion of water pricing. These are, 1) the opportunitycost of water discussed at length above, 2) marginal costpricing, and 3) cost recovery. Marginal cost pricing is thepricing of water at the cost of supplying an additional unitof water. In a perfectly functioning market economy themost efficient solution occurs when commodities are pricedat their marginal cost. The market is said to clear when themarginal cost is equal to the marginal benefit. The marginalcost must include the opportunity cost of the water. Costrecovery refers to pricing of water to recover the costs ofproviding it. Typically, cost recovery is based upon ac-counting procedures that are based upon historical costs.Cost recovery pricing can be close to marginal cost pricingwhen the costsofnewprojects are similar to the costs of pastprojects. Unfortunately, in water resources developmenthistorical costs are typically much lower than current orprojected costs of projects.

Many water planners confuse cost recovery withmarginal cost pricing, the economist's "goldenrule." Mostwater utility officials consider marginal cost pricing asleadingtounreaUsticallyMgh tariffs. Unfortunately, econo-mists often try to mandate strict marginal cost pricing,ignoring practical problems faced by utility managers. Infact, there are many different tariff structures that wouldallow full cost recovery without marginal cost pricing.Brown and Sibley (1986) showed for the telecommunica-tions industry that the Ramsey prices necessary to covercosts and profitwere only in the range of3%more efficientthan tariffs based upon traditional cost recovery methods.(Remember that telecommunications industry, however,has declining costs not increasing costs like the waterindustry.) While tariffs have financial, economic, andpolitical dimensions, it should be remembered that mar-ginal cost pricing relies only on the economic dimension.

11

The best approach probably lies somewhere between thetwo extremes. The tensionbetweenregulationandefficientpricing will always remain a source of contention betweenthe planners and the political process, however, as Brownand Sibley (1986) stated:

When regulation violates efficiency criteria seri-ously enough, not only economists become con-cerned. Peak load pricing in electricity, for example,was taken seriously in the U.S. when it became clearthat excessive use of electricity was contributing toan energy crisis that alarmed many people. Hence,normative economics plays an important, though notpreeminent, role in the regulatory process.

Pricing is the major tool by which economists at-tempt to bring about efficient resource use. Pricing is morethan cost recovery; it also aims at leading society to correctallocation decisions. Unfortunately, when many of theprices in an economy are artificially set, it is hard to inducerational resource allocation by ' 'correctly'' pricing just afew of the resources. This is amajorproblem in all countriesand regions. For example, it is estimated that in theEMENA region alone the subsidy to agriculture due toincorrect waterpricing is of the order of $40 billionper year.

The Bank must develop strategies that will enablecountries to bring their resource pricing progressivelycloser to market pricing, economywide, than is currentlythe case. The Bank's Policy Paper will have to lay out theissues and consequences of price policy so that price policywill become an integral part of the Bank's own operationsas well as of those of the borrowing countries.

2. Cost Recovery

In the Indian state of Bihar, the charges for IrrigationDepartment water from river diversions and dams are solow and the attempts to collect the fees so feeble, that in1979 the cost incurred in collecting the fees for water was117 percent of the actual amount collected. Owing to itsserious financial difficulties, the InigationDepartment hashad to defer maintenance, and the water system has dete-riorated. Farmers have less incentive to pay for poorservice, and a vicious cycle has developed. Moreover, thelow water charges have led farmers to use water ineffi-ciently. Bv contrast, in both the Punjab region in India andin areas of the United States that rely on water from privatewells, farmers are farmore conservative in howmuch waterthey use since they pay higher prices. (Well water costsmore because it is not subsidized.) Yet these farmers' cropsare not doomed to economic failure: when the cost ofpumping in the Punjab increased in the 1960s, farmersbegan growing more water-efficient crops such as high-

yielding wheat, and cash crops such as cotton, tobacco, andoilseeds.

Outside observers are surprised by the disparitiesamong cost recovery rules for Bank loans in differentsectors. In the electric energy and telecommunicationssectors the Bank insists on full cost recovery for the capitalas well as O&M expenses. The goal is to create viablepublicutilities, able to set tariffs that willefficiently financethe future development of the sector. In contrast, watersector projects typically require only repayment of theO&M and of some "reasonable" part nf t^a carnal costs.Many would argue that this policy leads to sloppy perfor-mance on the part of both the suppliers and consumers ofwater. Since we do know that water use is directly relatedto the prices charged; the higher the prices, the lower the

The Bank should carefully study the implications ofmoving toward full cost recovery for water sector invest-ments, and alternative methods of doing so.

4.1.5 Environmental Impacts of Water Development

There are increasing pressures on international insti-tutions to take the lead in responding to concerns aboutenvironmental deterioration. The Bank should take theinitiative in dealing with these problems, instead of itsbeing seenasmerelyreacting to specific challenges as theyarise. As the industrialized nations have discovered, assur-ing water quality entails more than the regulation ofindustrial and municipal wastewater discharges. Nonpointsources such as agricultural runoff, are now recognized asmajor contributors to environmental problems that cannotbe ignored. More importantly, at the level of questions ofsustainability of ecosystems as a whole, water use andwater contamination play major roles. They cannot beeasily separated into water quality and water quantityissues; both are critical.

From the environmental point of VM"" ""T*1 "f tlifj.Concern With ^^fjyftjgt^atfims frQnvilmrasiial wayiii.which environmentalconaeqiiPnces art handled as a lastminute considgratjgrx.jathfr than

^ g . Big offenders includeirrigation projects in which drainage issues are neglected inthe initial planning, navigation projects in which the dis-posal of dredged materials is haphazard, and flood controlprojects which ignore flood-plain fisheries. In all of thesecases adequate pre-planning guidelines could substantiallyreduce the environmental impacts. There are other proj ects,for example large dams, which have major environmentalimpacts that cannot be mitigated, such as loss of habitat,loss of fertile bottom lands, destruction of forests, and

12

sedunent trapping, in addition to the social impacts ofmoving large numbers of people from their homes andfarms. These consequences can only be addressed on apolitical level by providing the right kinds of institutionsthat will all™" %(1ia|ftp"*, «»t»"ri«*i™, and compensationto the affected groups. However, guidelines that force athorough search for alternatives could, in the case of largedams, suggest attractive alternate solutions such as modi-fications of the scale of the project or other storage optionssuch as underground storage or a larger number of smallstorages closer to the users. The World Bank OperationalMemorandum 4.00, Annexes A and B, could provide agood starting point for the development qf appropriateguidelines.

4.1.6 Social Impacts of Water Development

Inaperfect world, water development projects wouldhave only positive impacts on societies. However, becauseof the externalities inherent in many water investmentprojects, there are almost always some winners and somelosers. Local people lose their lands so that urban popula-tions can have electric power and lowland fanners canhaveirrigation. Upstream users pollute rivers with wastes orchoke them with sediment, causing severe damages todownstream users. Attention must be paid in planningprojects to minimize disruption outside of the project areaand to provide compensation to the affected parties.

As in the case of environmental consequences, manynegative social impacts could be avoided by careful pre-planning. Some of the most egregious social impacts followfrominvoluntarvmoyeinento|'populationsoutQfarea/thatare flooded by dams and embankments. The move itselfmay be unavoidable, but social disintegration and destitu-tion are not, and the needs of the affected populationsshould be integrated early into the planning process, withadequate resources and communication channels providedto meet those needs. Other cases, such as equity in wateraccess in irrigation projects, are less obvious and aretherefore often ignored by project developers and fundingagencies. Particular impacts on women and children arealso often overlooked until it is too late to mitigate theirdamage. Human health issues are often neglected in evalu-ating water sector investments. For example, the introduc-tion of schistosomiasis into a region by irrigation projectsis a serious matter and can be avoided or controlled to asignificant extent by changes in system design and opera-tion. Access to water for baling, forreligious purposes, forwateringanimals.^lforrecreationare all important socialusejj^wateroften inadvertentlyleftout of project plans.

There is also the option of actively using waterinvestments to achieve poverty reduction or other equity

goals. The irrigation literature is replete with discussions ofhow to define equity, how to measure it and its effects onproductivity and other values, and how to plan for it. Someoptions are more equitable than others and should bepursued in the design and implementation of water re-sources works. Nevertheless, if one were looking forinvestments in the economy to achieve equitable distribu-tions of benefits, water projects are not the most likely^candidates. Even within irrigation projects themselves it isimportant, for example, that the economic costs of skewingwater allocations in favor of equity that are imposed uponsociety be defined in terms of the number of farmers, ratherthan farm sizes, and that they be carefully estimated andpolitically assessed as to whether they exceed the accruedsocial benefits. In some situations farms are too small to beeconomically efficient and the water might be better usedon slightly larger farms.

Equity is an emotionally charged issue which theBank can help borrowing governments weigh properly byproviding a dispassionate discussion of it in its PolicyPaper. There is alargerole fortheBankinhelping countriesdeal with these types of impacts in a straightforward wayby giving them due weight in their own indigenous plan-ning methods and organizations. Some of these resourcesare already covered by the Bank's own environmentalassessment guidelines. They should be made explicit in thePolicy Paper.

4.1.7 Conservation and Recycling of Water

One of the most obvious ways of extending the waterresourcesbaseisbyconservingwaterorbyrecyclingitafteruse. Unfortunately, by themselves these measures are notthe panaceas that they are often thought to be,Inmost casespeople and industries "waste'' water only because it islhecheapest thing to do. Unless water prices are raised signifi-cantly there is no incentive to do otherwise. The experiencein the industrialized countries is that people can be moti-vated to conserve water on the basis of altruism only intimes of shortage. Typically, after the stress is removedconsumption rises to the previous levels.

There is much discussion of the recycling of sewagefor use in agriculture. Many cities have been doing thismore or less successfully for some time. The practice iswidespread in Asia, with, however, some problems inprotecting the public from pathogens. With, care such usecan be made of sewage, and should be made whereverappropriate. However, much of the discussion implies thatlarge amounts of irrigation can be accomplished with suchrecycled water. One needs to be reminded of the tremen-dous asymmetry in volume between agricultural and do-mestic water uses: one large irrigated farm in the U.S.

13

consumes as much water as a town of 15,000 peopleproduces wastewater. It takes the wastewater of 50 peopleto irrigate the land required for growing the food for oneperson. Although water recycling for industrial and domes-tic uses appears attractive and a worthwhile investment forvegetable gardening, it is not likely to make a majorcontribution to irrigating field crops.

Direct recycling of Municipal wastewater has alsobeen practiced wfrheat-tBeuse of irrigation as an interme-diary. For example, Windhoek.Namibia, has been success^fullyrecycling large quantities of municipal water formore^that 20 years without apparent problems. In some parts ofthe world sucnrecycung is practiced in an unobtrusive way.For example, in Holland polluted water from the Rhine isfiltered through the river banks before being abstracted forurban water supplies.

A lot has also been written about conserving water byimproving the efficiency of use in irrigation and reducingthe losses in urban water systems. As discussed below,increasing water use efficiencies in agriculture is a difficultconcept and the practice may not really provide greatsavings of water inmanycases,particularly where conjunc-tive use of groundwater is practiced. Nor is it necessarilywise to reduce losses in urban water systems, sincTthecost

ByTne" water^ ufiKgTTuTis clearly an area where theappropriate pricing and valuation of the water itself is themajor issue. Conservation for its own sake is not a realisticor advisable goal; it only makes sense within a correctpricing policy for water. The Bank's Policy Paper shouldclarify the potential role of conservation and recycling.

4.1.8 Host Country Institutional Reform

In most countries there is a great need to upgrade theinstitutions dealing with the various aspects of water. Mostimportantly, in every country there should be one institu-tion with the responsibility to coordinate water policyacross uses and across government agencies. Even ad-vanced industrial countries such as the United States, sufferfrom lack of coherence in water policy across uses. Thereis often a tremendous inertial asymmetry between thestaffing of agencies with traditional concerns and thosewith more modem ones. For instance, in Thailand theIrrigation Department is the single largest governmentagency. Inlndiajhe use of surface water is administered bythe£entralWater Commissiop. whereas the Central Ground-

proundwater use. There is little

practical integration of these agencies' plans, despite aformal agreement to cooperate. Each of India's 22 statesalso has its own department of irrigation, which usuallydeals only with surface-water supplies, while other depart-ments focus on groundwater. In cities around the world,

municipal water is a local responsibility, but many indi-viduals also sell water hi small quantities to households.Rural households are almost always in charge of obtainingtheir own supplies. The result of such compartmentaliza-tion is that agriculture, industry, and municipalities usewater inefficiently.

Whileinstitutionsarelikelytobehighlyregionalandculturally specific, theneed to strengthen them is one of themajor generic prohlfflpiJacing-dfly^opment activitiesaround the world._Theneed is not for large, new institution^6ut, rather, for small policy councils composed, pf MftiratrnF^"ffiriajg whr vMl tn» ahlfi fft coordinate the worfc of %<existing water institutions. The Bank'sPolicy Paper shouldemphasize structure, organization, management, and therole of adequate cost recovery, to enable individual coun-tries' institutions to carry out necessary maintenance tasksand build for future demands.

4.1.9 Role of the Bank in Education, Training, andInformation Exchange

As the world's leading institution for supportinginvestments in the water sector the Bank is ideally posi-tioned to use its prestige and influence to further education,training, and information exchange. Through its EconomicDevelopment Institute (EDI) the Bank is already heavilyengaged in the formal training of Third World governmentservants. This role could be further enlarged by requiringmore on-the-job training for host government employees.As mentioned above, the appraisal process itself could beused as a useful teaching mechanism. In particular, theenvironmental and social impact assessment requirementsstressed above can be used as a public education tool. Ifgovernment agencies actually develop and use environ-mental and social impact assessments. they will discover,as will the impacted groups if they areintegrated into theprbcessThow waterinvesjtments reaJvtuncllOn ttWiell ownsocieties. This has been one of the most important out-comes in those developed countries which have imple-mented such an approach. Their citizens are now muchmore aware of the environmental and social consequencesof government action and have begun to make their viewsfelt through political action. Green parties are springing upthroughout the industrialized countries. Since funds arelimited, the Bankmight consider a role for itself in educat-ing otherpublicandprivate financing agenciesin this field.

4.2 Subsector Issues

4.2.1 Irrigation

"Water and food" carries many assumptions aboutdevelopment policy which need to be carefully and sepa-

14

lately examined. Food security is a major concern of everygovernment throughout the world but how to achieve asatisfactory level of security is not obvious. Natjonalsejfk.sufficiency in food grains is not the i^rftnti™ th^ it i<=often assumed to be, In the modem world oil is essential forsurvival, but nowhere do we find the belief that everycountry should be self-sufficient in oil. There is no reasonwhy every country should grow grain, whichrequires 2,000to 3,000 tons of water per ton. In an arid country water canhave much higher value for other uses. International tradecanredistribute water—in the form of grain-to nations thatdecide not to grow it. Israel subscribes to this practice,emphasizing valuable cash crops such as fruits, vegetables,and flowers for the European market. Countries that takethis approach could maintain stockpiles of the basic grains;even though stockpiles are costly and can deteriorate,replacing spoilage is less expensive than growing grain.Such countries could grow a diversity of cash crops so thatfluctuating international prices could not devastate theireconomies.

Even the definition of self-sufficiency is not clear.Does it mean that a country should be self-sufficient on theaverage, or for drought years, or only 75% of the time? Thechoice of the definition has a large impact on planning forwater use in agriculture. It is imperative that the Bankaddress this issue head-on in its Policy Paper.

Increasing' 'water use efficiencies'' in agriculture isa widely suggested solution to water shortages. However,in many parts of the world one farmer's inefficient useprovides the water for another farmer downstream orrecharges the groundwater for many other farmers. It hasbeen argued that the irrigation efficiency in California'sSan Joaquin Basin approaches 100% despite the fact that onany one farm the efficiency may only be 60-70%. Indi-vidual cases must be closely considered before much canbe made of the advisability of improving "irrigationefficiency." Many commentators looking only at farmlevel efficiencies have advocated improvement of effi-ciency of water application as the best way to conservewater. Although this may be true in some cases, it is notuniversally true and should be subjected to careful analysis.

It is more appropriate to start from the larger perspec-tive of the overall regional efficiency of the use of water forirrigation. But even this is a difficult concept, and agricul-tural and irrigation professionals will be on still strongerground if they orient themselves to the further-reachingconcept of the "economic efficiency" of all water userather than of "irrigation efficiency." "Irrigation effi-ciency" is a seductive notion because it simplifies theproblem to water alone by focusing it on engineering andmanagement variables. But it can become a form of tunnel

vision; it can throwthe larger benefU-costpicture seriouslyout of balance, and lead to misplaced investment on asignificant scale.

In its Policy Paper the Bank will have to devote amajor effort to analyzing irrigation since this is one of itsmajor lending activities. However, there are many otherissues involving choice of technology and cropping poli-cies that have not been featured here, which are also ofmajor concern in this part of the water sector. Many of thesector-wide issues apply in the irrigation area. For example,a recent paper by Johnson (1990) indicates that the prob-lems with irrigation in South and Southeast Asia arebecoming particularly acute because of the funding of theoperations and maintenance (O&M) of the systems. Asindicated above, pricing and cost-recovery are fundamen-tal to achieving proper operation and maintenance ofsystems.

4.2.2 Water and Health

A relationship between water and health has beenaccepted since at least the time of Frontinus, the WaterCommissioner of Rome in 97 A.D., but the exact relation-ship is not well understood even now. A World Bankposition paper on domestic water supply (World Bank,1976) cautiously limited itself to saying that "other thingsbeing equal, a safe and adequate water supply is generallyassociated with a healthier population." Many of thebenefits observed during the ' 'sanitary revolution'' in theindustrialized world were achieved when protected watersupplies were provided to societies with rising incomelevels, which induced other positive behaviors with respectto personal hygiene and nutrition. At low levels of devel-opment, investments in improved domestic water suppliesare often necessary but generally not sufficient to realizethe potential health benefits. For middle-level developingcountries, where the population is generally better edu-cated, the health benefits of investments in water supplyand sanitation are generally substantial. At higher levels ofdevelopment one typically observes small additional healthbenefits from further investments in such facilities.

But apart from drinking water and sanitation, serioushuman health problems can be introduced into an areathrough the development of water resources. The classiccase is the spread ofschistosomiasis in Africa and Asia afterthe introduction of irrigation. Debilitating rather than fatalin most cases, schistosomiasis now infects more than 200million people. Malaria, filariasis, yellow fever,onchocerciasis (river blindness), dracunculiasis (Guineaworm disease), and sleeping sickness can be spread byirrigation projects. Many water-soluble chemicals used inagriculture, particularly chlorinated hydrocarbons, accu-

15

mulate in animal and plant tissues and thus enter or becomeconcentrated in the food chain. High concentrations ofnitrogen fertilizer in water supplies cause blood diseases ininfants. In many countries unregulated and indiscriminateproductionand disposal of chemicals and their wastes haveled to serious contamination of surface and groundwatersby toxic and carcinogenic substances. Some of the worstcases are observed in developing countries which have fewresources to deal with them. A careful review of all of thesecomponents of "water and health" is in order, not just ofdrinking water and sanitation.

, 4.2.3 Urban Water Supply and Wastewater Disposal

With continuing rapid population growth, the num-ber of cities of over one million people is expected toincrease rapidly. It is in these burgeoning metropolises ofthe Third World that the most pressing needs for watersupply and wastewater disposal investments will be felt. Inall cities the costs of providing new water supplies andwastewater facilities are rapidly increasing. Careful assess-ment of new approaches to the whole problem are needed.For example, AkhterHameed Khan, the former head of theComilla Academy for Rural Development, has success-fully applied the approaches of rural organization to thedensely packed parts of the city of Karachi, mobilizing thelocal population to plan, construct, and finance a sewer anddrainage system at a fraction of the cost of similar systemsprovided by the city government.

We must look harder for innovative ways of dealingwith urban water and sewer issues. Technical and manage-rial performance needs scrutiny to ensure that excessivelycostly systems are not built merely to copy the industrial-ized countries. This is particularly true now in EasternEurope, where the tendency is to proceed immediately withthe same approaches as those used in Western Europe. Asis well known, the general rule is that removing the first50% of pollution is quite cheap, with the incrementalimprovements being increasingly costly. This consider-ation often supports developing a system in stages, movingto the expensive higher levels of performance as generaleconomic growth generates increased ability to pay forthem.

The costs of alternative approaches to urban watersupply and waste disposal should be carefully examined.Local agencies should be made aware of these costs andencouraged to set their tariffs to reflect real costs andprojected trends of costs. The issue of cost recovery,discussed in more detail above, is critical here. The Bankshould also initiate studies to elucidate the economicbenefits of the provision of these urban services. Suchstudies should be based upon assessments of the willing-

ness-to-pay for these services by different socioeconomicgroups. Such studies are conceptually difficult as well astime-consuming, but they should be carried out in a suffi-ciently large number of cases that the basic magnitudes ofthe expected benefits can be demonstrated. This is particu-larly important in this sector since most of the literaturefocuses upon the cost of the services and on complaints thatthey are becoming too expensive.' 'Too expensive'' com-pared to what? The only meaningful comparison is withthe benefits received from consuming these goods andservices.

For urban water and wastewater disposal, consider-ation of the role of industry in the management of theambient quality of the water resources is vital. Industry usesonly5 to 10 percent of all watersuppliedbutsnllrepresentsan important segment of demand. This results in part fromthe fact that industrial processes pollute a disproportionateamount of water. For example, in Sao Paulo and Seoul,industrial pollutionhasturnedmanystreamsandrivers intoopen sewers. Developing countries should learn from theexperience of industrialized nations: it is much more

tn dean up pol lute iTrn*M.*linn it \r

polluting in thfi first place, Economic incentives againstindustrial pollution, such as effluent fees, should be estab-lished so that companies will have an incentive to controltheir effluents at the source. In addition to the usualregulatory methods, innovative approaches such as trade-able permits and privatization of facilities should be ex-plored. The failure of some of these approaches in theindustrialized world does not mean that they may not beappropriate in Third World settings.

Regulating environmental quality by pricing theeffluents that individuals, municipalities, and corporationsemit is one of the standard recommendations of economictheory. The economic literature is full of conceptual schemesfor pricing and taxing effluents that would lead to internal-izing the externalities of pollution. Once this is done,environmental quality can be left entirely to the usualmarket forces. The Washington-based research institute,Resources for the Future, has led the campaign for fees oneffluent discharge into waterways for over 20 years withlittle success; it has mainly been opposed by those whothinkit improperto sell the right to pollute the environment.

Neverthelessasubstantialamountofeffluentpricinghas been used in the U.S. and in Europe. Hudson (1981)reports on the extent and mode of implementation of waterpollution pricing through sewer charges. He claims that by1970 more than 90% ofthe municipalities with populationsover 50,000 levied some form of sewer charge on resi-dences and industry and that 40% of local expenditure onsewage was derived from these charges. Industry can

16

choose to pretreat its waste, decrease its water use, improvehousekeeping, change either the production process orproducts, or it can choose to pay the effluent fee. Theindustrial charges are typically related to die quantity ofwater used and the "strength" of the effluent measured interms of the oxygen-demanding organic waste load (BOD)and total suspended solids. These charges can give anincentive to industries to change the amounts and strengthof their sewage effluents. Hudson's study offive large cities(Atlanta, Chicago, Dallas, Salem (Oregon),and South SanFrancisco) and 101 industries found that effluent chargeswere overwhelmingly preferred by the industrialists todischarge limitations. There was a universal attempt by theindustries in the sample to respond to the effluent feesdespite theirrelatively small costs to the industries. Hudsonconcluded mat; "...we are confident that economic incen-tives work well and can be effectively administered." In itsPolicy Paper the Bank should stress the application of wellestablished economic principles and innovative technicalapproaches in this area.

4.2.4 Rural Water Supply and Sanitation

This one problem area could easily consume theentire Bank lending portfolio and still not be completelyresolved 1990 is the end of the United Nations Water andSanitation Decade, but in percentage terms the populationcovered remains similar to that at the beginning of theDecade. More effort is needed on the social and economicsi/to nf this issue, and Bank*3Pona7Tffd. research on assess-ing willingness-to-pay for rural water supply should beextended to sanitation.. As in the issue discussed in section4.2.3., too much of the discussion focuses upon the costsand too little on the benefits. In addition, there is a need forresearch on appropriate incentive schemes to encourageindividual or private sector undertakings to provide goodsand services in rural water supply and sanitation.

The Bank has played a major role in the Water andSanitation Decade and it would be appropriate to include inits Policy Paper a critical review of the accomplishmentsand problems with respect to this entire set of activities.

4.2.5 Hydropower

Hydropowerisamajor areaofBank funding and onethat until recently was considered well defined and notcontentious. Recently, however, hydro projects have re-ceived a lot of criticism based upon their environmentalimpacts. The Bank's environmental guidelines have al-ready begun to address these issues and should make surethat governments receiving the funds are equally as carefulin the development of hydro projects. Some economicissues that need clarification in the hydro area relate to the

intersectoral nature of electricity and the conflicts over thepotential uses of the water between users. In addition, thepricing of the output from multipurpose water resourcesprojects that include hydropower needs careful reappraisal.The temptation is to load a disproportionate amount of thecost recovery on the electricity consumers and not on theagricultural and other users ofthe joint output ofthe project.

The Bank's Policy Paper should help develop ex-plicit guidelines for dealing with these issues, particularlythe environmental and social impacts discussed above, inits own operations and to encourage the governmentsreceiving funds to recognize mem as potential problems.

REFERENCES

Baumol, W. J. and W. E. Oates. Economics. EnvironmentalPolicy, and the Quality of Life. Prentice-Hall, 1979.

Brown, S. J. and D. S. Sibley. The Theory of Public UtilityPricing. Cambridge University Press, 1986.

Dasgupta, P., S. A.Marglin, and A. Sen. Guidelines forProject Evaluation, United Nations Industrial Develop-ment Organization, 1972.

Desvouges, W. H. and V. Keny Smith. Benefit-Cost As-sessment for Water Programs, Volume I. Prepared forthe U.S. Environmental Protection Agency, ResearchTriangle Institute, North Carolina, 1983.

Dorfman, R., and N. Dorfman. Economics of the Environ-ment. W.W. Norton, 1972.

Coase, R. "The Problem of Social Cost.'' The Journal ofLaw and Economics, October, 1960.

Eckstein, O. Water Resource Development and the Eco-nomics ofProjectEvaluation. HarvardUniversity, 1958.

Falkenburg, M., M. Gam, and R. Cestti. "Water Re-sources: A Call for New Ways of Thinking." WorldBank, INUWS Working Paper, March, 1990.

Fisher, A. andR. Raucher.' 'Intrinsic Benefits of ImprovedWaterQuality," in V. Kerry Smith, editor, AdvancesinApplied Micro-Economics, Volume 3. JAI Press Inc.,1984.

Hanke, S. H. "Economic Aspects of Urban Water Supply:Some Reflections on Water Conservation Possibili-

17

ties." International Institute for Applied Systems Analy- Kneese, A. V. and B. T. Bower. Managing Water Quality:sis, Laxenburg, Austria, December, 1982. Mimeo. Economics, Technology, Institutions. Johns Hopkins

Press, 1968.Hanke, S. H. and R Davis. "Potential for Marginal Cost

Pricing in Water Resources Management," Water Re- Little, I. M. D. and J. A. Mirrlees. Project Appraisal andsources Research 9,4, August 1973. Planning/or Developing Countries. Basic Books, 1974.

Hirschleifer, J., J. W. Milliman, and J. C. De Haven. Water Maass, A. et al. Design ofWaterResourceSystems. HarvardSupply: Economics and Policy. University of Chicago University Press, 1962.Press, 1960.

Major, D. C. and H. E. Schwarz. Large-Scale RegionalHudson, J. F. Pollution Pricing: Industrial Responses to Water Resources Planning.Kluwei Academic Publish-

Wastewater Charges. Lexington Books, 1981. ers, 1990.

Hufschmidt, M. M. and J. A. Dixon. Economic Evaluation Mann, P. C. Water Service: Regulation and Rate Reform.Techniques/or the Environment. Johns Hopkins Press, NationalRegulatoryResearchlhstitute,Columbus, Ohio,1986. 1981.

Hurst, C. and P. Rogers. "A Tale of Two Simulations: Meier, G. M., editor. Pricing Policy for DevelopmentIntegrating Water Sector Planning into Economy Wide Management. EDI Series in Economic Development,Planning Models.'' Paper presented at the 12th Interna- Johns Hopkins Press, 1983.tional SymposiumonMathematical Programming, Mas-sachusetts Institute of Technology, August 1985. Postel, S. "Saving Water for Agriculture,'' inL. R. Brown

et al.jStoW of the World: 1990. W.W. Norton, 1990.Ingram, G. K. ' 'Note on the Macroeconomic Linkages of )

Infrastructure.'' World Bank, October, 1989. Mimeo. Rogers, P. TWater: Not As Cheap As You Think.'' Tech-nologfReview 89, 8, Nov/Dec 1986.

James, I. C , B. T. Bower, and N. C. Matalas. "RelativeImportance of Variables in Water Resources Plan- Squire, L. and H. G. van der Tak. Economic Analysis ofning." Water Resources Research. 5, 6, December Projects. Johns Hopkins Press, 1975.1969.

UnitedNationsIndustrial Development Organization. GuideJohnson,S.H. "Progress andProblemsoflrrigationlnvest- to Practical Project Appraisal. UNIDO, 1978.

ment in South and Southeast Asia." Waterlnternational15(1990): 15-26. World Bank. Village Water Supply. World Bank, 1976.

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