A Socio-Hydrological Perspective on the Economics of Water Resources Development and Management

Water quantity and quality crises are emerging everywhere, and other crises of a similar nature are emerging at several locations. In spite of a long history of investing in sustainable solutions for environmental preservation and improved water supply, these phenomena continue to emerge, with serious economic consequences. Water footprint studies have found it hard to change culture, that is, values, beliefs, and norms, about water use in economic production. Consumption of water-intensive products such as livestock is seen as one main reason behind our degrading environment. Culture of water use is indeed one key challenge to water resource economics and development. Based on a review of socio-hydrology and of societies going all the way back to ancient civilizations, a narrative is developed to argue that population growth, migration, technology, and institutions characterize co-evolution in any water-dependent society (i.e., a society in a water-stressed environment). Culture is proposed as an emergent property of such dynamics, with institutions being the substance of culture. Inclusive institutions, strong diversified economies, and resilient societies go hand in hand and emerge alongside the culture of water use. Inclusive institutions, in contrast to extractive institutions, are the ones where no small group of agents is able to extract all the surplus from available resources at the cost of many. Just as values and norms are informed by changing conditions resulting from population and economic growth and climate, so too are economic, technological, and institutional changes shaped by prevailing culture. However, these feedbacks occur at different scales—cultural change being slower than economic development, often leading to “lock-ins” of decisions that are conditioned by prevailing culture. Evidence-based arguments are presented, which suggest that any attempt at water policy that ignores the key role that culture plays will struggle to be effective. In other words, interventions that are sustainable endogenize culture. For example, changing water policy, for example, by taking water away from agriculture and transferring it to the environment, at a time when an economy is not diversified enough to facilitate the needed change in culture, will backfire. Although the economic models (and policy based on them) are powerful in predicting actions, that is, how people make choices based on how humans value one good versus the other, they offer little on how preferences may change over time. The conceptualization of the dynamic role of values and norms remains weak. The socio-hydrological perspective emphasizes the need to acknowledge the often-ignored, central role of endogenous culture in water resource economics and development