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Multi-Page.Pdf WORLD BANK TECHNICAL PAPER NO. 338 k-p 33 Workin progress for publicdiscussion [9C( O Public Disclosure Authorized Measuring Economic Benefits for Water Investments and Policies Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized RobertA. Young RECENT WORLD BANK TECHNICAL PAPERS No. 263 Le Moigne, Subramanian, Xie, and Giltner, editors, A Guide to the Formulationof WaterResources Strategy No. 264 Miller and Jones, Organicand Compost-BasedGrowing Media for TreeSeedling Nurseries No. 265 Viswanath, BuildingPartnerships for PovertyReduction: The ParticipatoryProject Planning Approach of the Women's EnterpriseManagement Training Outreach Program (WEMTOP) No. 266 Hill and Bender, Developingthe RegulatoryEnvironment for CompetitiveAgricultural Markets No. 267 Valdes and Schaeffer, Surveillanceof AgriculturalPrices and Trade:A Handbookforthe DominicanRepublic No. 268 Valdes and Schaeffer, Surveillanceof AgriculturalPrices and Trade:A HandbookforColombia No. 269 Scheierling, OvercomingAgricultural Pollution of Water:The Challengeof IntegratingAgricultural and EnvironmentalPolicies in the EuropeanUnion No. 270 Banerjee,Rehabilitation of DegradedForests in Asia No. 271 Ahmed, TechnologicalDevelopment and PollutionAbatement: A Study of How EnterprisesAre FindingAlternatives to Chlorofluorocarbons No. 272 Greaney and Kellaghan, EquityIssues in PublicExaminations in DevelopingCountries No. 273 Grimshaw and Helfer, editors, VetiverGrass for Soil and WaterConservation, Land Rehabilitation,and Embankment Stabilization:A Collectionof Papersand NewslettersCompiled by the VetiverNetwork No. 274 Govindaraj, Murray, and Chellaraj, HealthExpenditures in Latin America No. 275 Heggie, Managementand Financingof Roads:An Agendafor Reform No. 276 Johnson, Quality Review SchemesforAuditors: TheirPotentialfor Sub-Saharan Africa No. 277 Convery, Applying EnvironmentalEconomics in Africa No. 278 Wijetilleke and Karunaratne, Air Quality Management:Considerationsfor Developing Countries No. 279 Anderson and Ahmed, The Casefor SolarEnergy Investments No. 280 Rowat, Malik, and Dakolias, JudicialReform in LatinAmerica and the Caribbean:Proceedings of a WorldBank Conference No. 281 Shen and Contreras-Herrnosilla, Environmentaland EconomicIssues in Forestry:Selected Case Studies in Asia No. 282 Kim and Benton, Cost-BenefitAnalysis of the OnchocerciasisControl Program (OCP) No. 283 Jacobsen, Scobie and Duncan, Statutory Interventionin AgriculturalMarketing: A New ZealandPerspective No. 284 Valdes and Schaeffer in collaboration with Roldos and Chiara, Surveillanceof AgriculturalPrice and TradePolicies: A HandbookforUruguay No. 285 Brehrn and Castro, The Marketfor WaterRights in Chile:Major Issues No. 286 Tavoulareas and Charpentier, Clean CoalTechnologiesfor Developing Countries No. 287 Gillharn, Bell,Arin, Matthews, Rumeur, and Heam, Cotton ProductionProspectsfor the Next Decade No. 288 Biggs, Shaw, and Srivastiva, TechnologicalCapabilities and Learningin African Enterprises No. 289 Dinar, Seidl, Olem, Jorden, Duda, and Johnson, Restoringand Protectingthe World'sLakes and Reservoirs No. 290 Weijenberg,Dagg, Kampen Kalunda, Mailu, Ketema, Navarro, and Abdi Noor, StrengtheningNational Agricultual ResearchSystems in Easternand CentralAfrica: A FrameworkforAction No. 291 Valdes and Schaeffer in collaboration with Errazuriz and Francisco, Surveillanceof Agricultural Priceand Trade Policies:A Handbookfor Chile No. 292 Gorriz, Subramanian, and Simas, IrrigationManagement Transfer in Mexico:Process and Progress No. 293 Preker and Feachem, Market Mechanismsand the HealthSector in Centraland EasternEurope No. 294 Valdes and Schaeffer in collaboration with Sturzenegger and Bebczuk, Surveillanceof AgriculturalPrice and Trade Policies:A HandbookforArgentina No. 295 Pohl, Jedrzejczak, and Anderson, CreatingCapital Markets in Centraland EasternEurope No. 296 Stassen, Small-ScaleBiomass Gasifiersfor Heat and Power:A GlobalReview No. 297 Bulatao, Key IndicatorsforFamily Planning Projects No. 298 Odaga and Heneveld, Girlsand Schoolsin Sub-SaharanAfrica: From Analysis to Action (List continues on the inside back cover) WORLO BANK TECHNICAL PAPER NO. 338 Measuring Economic Benefits for Water Investments and Policies RobertA. Young The WorldBank Washington,D. C. Copyright i 1996 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 1996 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d[Iena, 75116 Paris, France. Robert A. Young is Professor Emeritus at Colorado State University. ISBN 0-8213-3745-9 ISSN: 0253-7494 Library of Congress Cataloging-in-Publication Data Young, Robert A. (Robert Alton), 1931- Measuring the economic benefits for water investments and policies / Robert A. Young. p. cm. - (World Bank technical paper, ISSN 0253-7494 ; no. 338) Includes bibliographical references. ISBN 0-8213-3745-9 1. Water resources development-Economic aspects-Mathematical models. I. Title. II. Series. HD1691.Y68 1996 96-34710 322.91'001'51-dc2O CIP TABLE OF CONTENTS FOREWORD vii ACKNOWLEDGMENTS viii EXECUTIVE SUMMARY ix Background,Objectives and Scope ix Conceptsand Methods x Methodsof NonmarketValuation of Water x Methodsof Valuing IntermediateGoods x ValuingWater as a Private ConsumptionGood xi ValuingPublic GoodBenefits of Water xii Conclusion xiii GLOSSARY xiv 1. INTRODUCTION 1 1.1 The Need for SyntheticEstimates of the EconomicBenefits of Water-RelatedDecisions 1 1.2 The distinctivenature of water supplyand demand 3 1.3 Objective,Scope and Plan of the Monograph 6 2. CONCEPTUAL FRAMEWORK AND SPECIAL PROBLEMS IN VALUING WATER 8 2.1 IntroductoryComments 8 2.2 EconomicValue versus Other Conceptsof Value 8 2.3 EconomicCriteria for ResourceAllocation and Valuation 9 2.3.1 The Pareto Principleand EconomicEfficiency 10 2.3.2 From Theory to Practice 10 2.4 EconomicValuation in the Absenceof Market Prices 11 2.4.1 The Needfor Shadow(Accounting) Prices 13 2.4.2 DefiningShadow Prices: The Willingnessto Pay Principle 13 2.4.3 EconomicSurplus and Measuresof Benefit 14 2.4.4 OpportunityCosts: MeasuringForegone Benefits of ReducedWater Use 17 iii 2.5 Some Specific Cases of Economic Evaluation of Water Resource Issues 18 2.5.1 Evaluating Investments in Additional Water Supplies 18 2.5.2 Evaluating Proposals to Reallocate Water Among Sectors 18 2.6 The Benefits of Improved Water Quality 20 2.7 Benefits of Improved Water-Supply Reliability 21 2.8 Other Conceptual Issues in Water Valuation 22 2.8.1 The With-Without Principle 22 2.8.2 Accounting Stance 23 2.9 Special Problems Associated with Nonmarket Valuation of Water 23 2.9.1 Long-mn versus Short-run Values 23 2.9.2 The Value of Water Relative to Other Commodities 24 2.9.3 Commensurability of Place, Form and Time 24 2.9.4 Appropriate Allocation Variable: Depletion versus Withdrawal 25 2.10 Uncertainty and Sensitivity Analysis 25 3. TECHNIQUES FOR MEASURING THE VALUE OF WATER 27 3.1 Preliminaries 27 3.2 Observations of Transactions in Water and Related Goods 28 3.2.1 Values from Rentals and Sales of Water Rights 28 3.2.2 Valuing Water as a Part of a Bundle of Marketed Characteristics: The Hedonic Method 29 3.2.3 Demand Functions from Water Utility Sales Data 31 3.3 Techniques for Valuing Water as an Intermediate Good 32 3.3.1 The Residual Imputation Approach 32 3.3.1.1 Derivation of the Residual Value 33 3.3.1.2 The "Change in Net Income"
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