Water Policy Vol 9 No 4 pp 345–362 © IWA Publishing 2007 doi:10.2166/wp.2007.020

Can economists value water's multiple benefits?

David F. Batten

If we recognize that water is not an ordinary economic good, we begin to understand why it is so difficult to assess and compare its many and varied benefits. Market instruments devised for conventional goods may not ensure that water is allocated efficiently and equitably. Classical economic tools, such as cost–benefit analysis, input–output analysis or equilibrium models, may not be able to embrace water's multiplicity of short, medium and long-term benefits. Only those parts of the water cycle close to intermediate and final users are usually treated as economic goods. If its vision is limited to linear, short run quantities and relationships, a computable model abstracts from a real world that we know is dynamic, nonlinear and co-evolutionary. Short run economic priorities for water policy tend to dominate over sustainable allocation and quality conservation in the longer run. There is a need to consider longer time horizons and the complex, dynamic character of water, if we are to meet the challenge of repairing Australia's seriously impaired natural waterways.

Keywords: Complex system; Economic models; Valuation; Water benefits

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