Water Value, Water Management, and Water Conflict: A Systematic Approach

This report on the work of an Israeli-Jordanian-Palestinian-American-Dutch project shows that water issues are best dealt with by thinking in terms of water values rather than water quantities. In this way, water conflicts can be reduced to disputes over money—in many cases, surprisingly little money. It is argued that actual free-water markets will not successfully allocate water resources, partly because water markets are unlikely to be competitive and partly because of externalities including both environmental concerns and the fact that countries place special values on the use of water in agriculture—values that exceed the returns to farmers. However, it is possible to build economic models of water use that incorporate such features and that can guide water management and infrastructure decisions. These models produce “shadow values” that can guide decisions in the same way free-market prices would if they could cope with the difficulties mentioned above. These shadow values can then be used to guide international (or other) cooperation in water. These methods are applied to Israel, Jordan, and Palestine, and the gains from cooperation are found to be much larger than the gains from reasonably large shifts in water ownership. By such means, water conflicts can be resolved.