Prof. Hanemann kindly gave a guest lecture for our water and sanitation course at the University of Manchester, UK. He spoke about ‘climate change and water’, based on his research on California, USA, and from his vantage point as lead author of the Intergovernmental Panel on Climate Change Fifth Assessment Report (AR5, covering 2011-14). He has also been involved in large-scale non-monetary valuations of harm from environmental disasters, such as the 1989 Exxon Valdez oil spill off Alaska, USA.
However what I want to highlight today for World Water Day is his separate presentation, “Why the economics of water is so hard.”
A summary of some of Prof. Hanemann’s points can be seen in this 4-minute YouTube video from 2017, on “What are the major challenges of valuing water?“:
There is also a recording of Prof. Hanemann’s full March 2018 talk (54-minutes) on YouTube:
For many years, I’ve heard people debate and write about why water is so ‘different’ to other sectors, commodities and so on. Prof. Hanemann’s perspective here is precise and yet still comprehensive. In a few bullets, here are some of his main arguments:
- Water is an exceptionally difficult commodity to conceptualise, to manage, to allocate
- Water is difficult everywhere in the world, in rich countries, as much as poor ones
- Water is a heterogeneous, not standardized commodity; its unit value depends on location, timing, quantity, quality, ex ante predictability/certainty; property rights include its inherent variability – making it meaningless to talk about ‘the‘ price of water
- Water is an entangled commodity – with externalities of its use, property rights, shared infrastructure, joint costs
- Water transfers are diplomatic negotiations not simply an economic transactions
- Water supply is highly fragmented – echoing our patterns of human settlement around it
- Water is a human right
- Water is largely invisible – ‘out of sight, out of mind’, and the condition of water infrastructure is no longer a driver for property values (as it was when piped systems were installed in the 19th century)
- Equity and bargaining concerns for water battle with efficiency and optimisation concerns
- Water rights are ‘usufructuary‘ – as a ‘unique form of property’ limited by ‘a variety of factors … that seldom affect real property and other property rights’ (a right entitles one to use and enjoyment but without destruction)
The full details, and the fascinating history of bizarre and challenging water rights in California are in the full YouTube video linked above.
On World Water Day, many organisations and people today will call for improvements in access to water, in the quality of water-related services, and for mindfulness around environmental and climate change concerns. Against this backdrop, I feel Prof. Hanemann’s incisive observations are worth acknowledging. They constitute a very challenging baseline for these debates, discussions and plans towards a better water future for all around the world.