Economic Requirements of Water Resources Management

Indicators of water resources status and water consumption in Iran reveal an imbalance between supply and demand. This is compounded by the current unrealistic water price that signals the inefficiency of the water market in Iran. In economics parlance, the most important factors responsible for the low efficiency of water market are inaccurate valuation and failure to define the ownership rights of water. Low prices, low sensitivity of water demand to prices, and the lack of proper inputs as substitutes for water resources have collectively contributed to excessive pressures on the available water resources for domestic, industrial, and agricultural uses. A brief glance reveals that water resources in Iran are merely priced based on cost accounting. This is while study has shown that developed countries adopt approaches to water pricing that not only consider the final cost of water but also take into account such other parameters that are affected by intrinsic value of water including its bequest and existence values. The present paper draws upon the concepts of value, expenses, and pricing of water in an attempt to explore the marketing and pricing of water resources as the two major tools economists employ in the management of these resources. It is the objective of the study to arrive at an accurate definition of ownership rights of water resources to improve upon the present water marketing. In doing so, the more important components of modern pricing strategies adopted by developed nations will also be investigated. Results indicate that the present cost accounting method used in pricing water in Iran will in the long-run lead to the wastage of water resources and that it should, therefore, be given up in favor modern and more realistic policies to avoid such waste of resources.