Managing water as an economic good: rules for reformers

This paper extends a previously-developed framework for the management of water as an economic resource, by showing how positive and negative externalities can be taken into account, The main focus of the paper, however, is on assessing the lessons of experience which emerge from successful reforms, The following emerge as a tentative set of "rules for would-be reformers": initiate change only when there is a powerful, articulated need for reform; have a clear strategy for involving all interested parties in the discussions of reform, and for addressing fears seriously, with effective, understandable information; pay attention to general principles, but be sensitive and innovative in adapting these in different institutional and environmental contexts: do not advertise water markets as a silver bullet or a panacea, but ensure that they are part of an effective water resource management system; start with the relatively easy problems to get experience and build momentum for reform; acknowledge that there are no perfect solutions, and don't let the best become the enemy of the good, pay close attention ro prescribing institutional arrangements which will address legitimate third-party issues, but which will simultaneously minimize transactions costs.