Water Challenge and Institutional Response (a Cross-Country Perspective)

55 Pages Posted: 20 Apr 2016

See all articles by R. Maria Saleth

R. Maria Saleth

University of Delhi - Institute of Economic Growth (IEG)

Ariel Dinar

World Bank - Agriculture and Rural Development Department

Date Written: January 1999


Concerns in the water sector, which once revolved around water development (and quantity), now revolve around water allocation (and quality). The old paradigm-focused on centralized decisionmaking, administrative regulation, and bureaucratic allocation - is fast giving way to a focus on decentralized allocation, economic instruments, and stakeholder participation.

This cross-country evaluation of institutional responses to problems in the water sector shows that changes in the nature of water problems have changed the development paradigm underlying water institutions. There is increasing recognition of how decentralized allocation mechanisms can influence economic forces and stakeholders in water sector decisions. As the notion of water provision as a public good and welfare activity gives way to the concept of water as an economic good and an input of economic activity, there is more policy concern about efficient and equitable use, cost recovery, and financial viability.

All of the countries Saleth and Dinar studied (Australia, Brazil, Chile, China, India, Israel, Mexico, Morocco, South Africa, Spain, and Sri Lanka) are committed to changing the policies and institutions that have caused the present water sector crisis, but they are at different stages of institutional reform. Among cases discussed, Australia and Chile (and, in the United States, California and Colorado) are at an advanced (though not ideal) stage of institutional change. Israel, with its technologically advanced water sector, could well be ahead of them when the proposal to allow water transfers and decentralize water development and distribution systems takes practical shape. Tentative conclusions reached by Saleth and Dinar:

- Attempts to fix isolated parts of the water sector will influence other dimensions but an integrated approach is best. At the heart of such an approach should be institutional changes aimed at modernizing and strengthening legal, policy, and administrative arrangements for the whole sector. - Institutional changes taking place everywhere suggest that the opportunity costs of (and net gain from) institutional change are overtaking most transaction costs. But institutional change is not uniform, suggesting that opportunity and transaction costs vary. - Funding agencies should focus efforts and resources in countries, areas, and subsectors that already have enough critical mass in institution-building to ensure success and lower transaction costs. - The sequence and pace of reform should reflect realities of scale economies and political pressures from reform constituencies. When possible, political economy should be exploited to move reform along more quickly.

This paper - a joint product of Rural Development, Development Research Group, and Rural Development Department - is part of a larger effort in the World Bank to implement its water resources management policy.

Suggested Citation

Saleth, R. Maria and Dinar, Ariel, Water Challenge and Institutional Response (a Cross-Country Perspective) (January 1999). World Bank Policy Working Paper No. 2045. Available at SSRN: https://ssrn.com/abstract=569189

R. Maria Saleth (Contact Author)

University of Delhi - Institute of Economic Growth (IEG) ( email )

Delhi, 110007

Ariel Dinar

World Bank - Agriculture and Rural Development Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States
202-473-0434 (Phone)

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