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close this bookHydropolitics along the Jordan River. Scarce Water and Its Impact on the Arab-Israeli Conflict (UNU, 1995, 272 pages)
close this folder3. Towards an interdisciplinary approach to water basin analysis and the resolution of international water disputes
close this folder3.3. Paradigms for analysis of international water conflicts
View the document(introduction...)
View the document3.3.1 Physical sciences and technology
View the document3.3.2 Law
View the document3.3.3 Political science
View the document3.3.4 Economics
View the document3.3.5 Game theory
View the document3.3.6 Alternative dispute resolution (ADR)

3.3.4 Economics

Economics, with the individual as a rational maximizer of satisfaction in a world of relative scarcity, offers a useful paradigm for water conflict analysis. When deciding between several possible water development options, for example, the benefit-cost analysis - an economic tool by which all of the future benefits and costs of a project are reduced to a single amount representing the net benefits in current monetary units - can help one to determine which project would be the most beneficial.

Economic theory also provides guidelines for policy options for efficient water distribution. Economic theory argues, for example, that only when the price paid for a commodity is a reasonable reflection of the true cost, can market forces work for efficient distribution of the commodity. In the Middle East, as elsewhere, the cost of water to the user is highly subsidized, especially water earmarked for agriculture. The true cost of water would reflect all of the resource development, pumping, treatment, and delivery costs of that water, most of which are not passed on to the user. In Israel alone, 20 per cent of the country's energy is used solely to move water from one place to another (Naff and Matson 1984, 12).

Subsidized water, it is argued, leads to waste in agricultural practices, to too little incentive for research and development of conservation techniques and practice, and finally, to too much water being allocated to the agricultural sector as opposed to industry. Take away subsidies and allow the price to rise, and market incentives are created for both greater efficiency on the farm and a natural shift of water resources from the agricultural sector to industry, where contribution to gross natural product per unit of water is often much higher. Since, in each of the areas discussed, between 75 and 95 per cent of water use is allocated for agriculture, the savings in water could be substantial (Wishart 1990). Thomas Naff has recommended such a shift of between 35 and 40 per cent of agricultural water in both Israel and Jordan (lecture, University of Wisconsin-Madison, March 1990).

If the price of water reflects the true costs of its development, and if property rights to water are clear, then a "water market" can be established to allow buying and selling, ensuring, through the "invisible hand" of the market-place, that each unit of water is being used most efficiently. Water markets, whether national or international, can provide clear incentives for efficient use and guidelines for trades or transfers. Howe and Easter (1971) derived the necessary conditions for economically efficient interbasin water transfers in the United States, and Dinar and Wolf (1992) discussed international water markets using a hypothetical transfer from the Nile to the Jordan basin as a casestudy. Zeitouni et al. (1992) discussed trading water rights in an international context and Gonzalez and Rubio (1992) showed that the amount of water to be transferred between basins in a Spanish case could be reduced if economic factors were considered, as opposed to straight extrapolations of need.

Economic analysis may also create a framework for easing regional water tensions. According to Wishart (1990), "conflicts over water rights are easier to resolve if transaction costs of resolution are lower, and if opportunities exist for improving the efficiency of water use and discovery." In other words, if it is cheaper for people to cooperate and save water than it is to fight, they would rather cooperate.

Some other considerations that have been used in the past to enhance the potential for economic cooperation between players include the following:

  1. Recognizing that, while water itself is a finite commodity, and therefore conducive only to zero-sum solutions ("distributive" or "win-lose," in the language of ADR), the benefit, or welfare, derived from water is variable and therefore traceable for non-zerosum ("integrative" or "win-win") solutions.
  2. Welfare can be measured basin-wide and among all the players participating in cooperation, so that even when one player's individual welfare is not immediately enhanced by the loss of the resource, the resulting pay-offs of trade should result in the region as a whole being better off.
  3. Infrastructure considerations can enhance the argument for cooperation, especially when considering the variable aspects inherent to water resources. One or another of the players may have better resources to deal with fluctuating quantity or quality more storage potential, or better-developed water treatment, for example which can help encourage an alliance.

There are, however, problems inherent to using economic theory as the tool for water conflict analysis - problems that can lead to weaknesses in the economic solutions prescribed. For one, water is not a pure economic good. Options to the consumer of most goods include migrating to where it is cheaper or abstaining from it altogether if the price is too high. Given small countries with contentious borders, migration to water sources is not a viable alternative, nor, for more obvious biological reasons, is abstaining. Presumably, however, the analysis is restricted to water for agriculture, where there is ample room for reducing demand before running into such limits.

Another problem with economic analysis is more serious because it has to do with a force much more fundamental than economic theory - that is, the emotions of a nation. As mentioned earlier, all of the countries in the area were built from the farm up, and the agriculturalist, whether the fellah or the kibbutznik, holds a special mystique on both sides of the Jordan. Both Arabic and Hebrew ideologies are rife with slogans of "making the desert bloom" and "nations rooted in their land." In this context, water invariably becomes the "life blood" of a nation. One result of this has been a certain leeway granted to agriculture in the area, both political, as noted previously, and economic.

One striking example of water "diseconomy" is the case of Israeli settlements on the Golan Heights. The 24, mostly agricultural, settlements of the Golan have a population of about 3,500. In 1980, approximately 80 per cent of the 50 MCM/yr used by these settlements was pumped up from Lake Kinneret - a height differential of 600 m (Davis et al. 1980, 27; Inbar and Maos 1984, 22). Each cubic metre of water weighs a metric ton. Were the settlers to include the costs of the energy required to lift that much water that high, their crops could not possibly be competitive in the market-place. But settlements on the Golan Heights are viewed as more than a source of agricultural production: as mentioned earlier, they are also outposts, the presence of which creates a kind of first line of defence against the Syrians, whom many Israelis view as the likely antagonist in an ensuing war.

This perceived connection between settlements and security holds true throughout the country. As Frey and Naff (1985) write,

Israeli agriculture is not merely an ordinary economic sector. It is linked to the crucial matter of settlements, and settlements are linked to defense and national security.

This, then, is what makes Golan cotton competitive in the eyes of the nation.

Overlooking this fundamental aspect of a "national water ethic" of any of the countries involved, can occasionally confound an economist, especially one from outside the region. Cal Burwell, once the Director of Research for the proposed Agro-lndustrial Complex, mentioned recently that "Some of what's valuable to the folks over there just doesn't fit into what our folks would call 'good economics"' (interview, February 1990).

The economist increasingly recognizes the sometimes overpowering noneconomic values that water users occasionally attribute to their water. These might include (from Wolf 1992a):

  1. Political attributes of water, e.g. perceived past injustice, national pride;
  2. Cooperation per se (e.g. the World Bank does not include international cooperation as a benefit in benefit-cost analyses (Olivares 1986);
  3. Physical security;
  4. Perceptions of beauty in the environment;
  5. "The Land Ethic" inherent value of "non-economic species";
  6. Food or water security - the psychological value of control;
  7. Open space.

This last represents a departure from historic economic arguments in the Middle East. In Israel, for example, water has been subsidized for years as a means of promoting population dispersion and food security. These subsidies have dwindled somewhat in recent years, as the Ministry of Agriculture has accepted more of a market approach. Lately, however, as the population soars with natural growth and extensive immigration, the suggestion has been made to increase subsidies once again as a way to keep open space among the extensive developments (interview, Martin Sherman, November 1991).

Additional factors often convolute the possibility for a traditional economic analysis, particularly in an international setting. Some of these possible political and institutional constraints to economic cooperation are as follows:

  1. Some level of hostility between the players. Hostility can be between basins (e.g. northern and southern California), between economic sectors (urban versus agricultural users), or, especially, between political entities (e.g. the Turkish Peace Pipeline, Akdogan 1992; Nile water transfer, Dinar and Wolf 1992).
  2. Property rights (ownership of water) are often unclear and, occa signally, bitterly contested. Although water is internally nationalized in all of the cases discussed in this work, international ownership is often unspecified.
  3. State-subsidized water often makes the economics of any transfer or trade unclear, as described above.
  4. National prestige can be tied up in the population's perception of its water resources, decreasing the apparent desirability of cooperation. National pride in "Israeli oranges," or "Egyptian cotton," for example, may preclude a shift to other agriculture or industry, even if the product in question can be imported at less expense from abroad.
  5. Usually, when an inter-basin or international exchange is agreed upon' it is for one specific amount to be delivered annually. Because of treaty or infrastructure limitations (such as pumping, storage, or delivery capacity), the "solution" is discrete and cannot be arrived at dynamically. This limits the potential for efficient water market transactions, which often rely on variable solutions (e.g. Lekakis and Giannias 1992; Zeitouni et al. 1992).
  6. Insulation. Negotiating teams usually include diplomats and engineers. The primary considerations are therefore often of politics and reliable delivery, rather than being influenced by economic efficiency.

Even while recognizing its limits, one can still use economic analy sis as a useful tool to provide some guidelines to increase hydrologic efficiency. It has been suggested that following these guidelines can be especially crucial, particularly as water limits begin to be reached:

Whereas diseconomies dictated by ideology could be tolerated under condi tions of conventional water sufficiency, they cannot continue indefinitely, especially with regard to investments under conditions of system's short age. (Galnoor 1987)