Water policy and economics

Published: 21 December 2015

Water is a key resource for many human activities, with many different types of uses. Water can have a range of different functions at once; this makes water policy complicated, but also makes water use an important research topic for economists.

Water can function as a private good for households and firms, when used as a source of domestic water or as an input to production; it can function as a public good, when used for recreation or as support for ecosystem services used by households or by firms; and it can act as a public bad, when extreme weather events lead to flooding or when unhealthy water contributes to disease transmission. Our research on the economics of water use and water policy studies many of these different functions, using a range of different analytical tools. Many of Sweden’s river bodies are affected by hydropower developments, to a greater or lesser extent; this hydropower plays a key role in climate policy, as a source of clean electricity and as a means of balancing uncertain electricity supply from less predictable wind and solar power, and is also key for regulating water flows in order to prevent flooding events. At the same time, these hydropower developments affect river ecosystems throughout Sweden, making them an important obstacle to achieving the environmental goals set in the European Union’s Water Framework Directive and in domestic water policies. Valuing the different uses of water is an important input to the debate over tradeoffs in water policy both in Sweden and in other countries, and valuing the different risks associated with unsafe water management is also an important research area. The methods employed include environmental valuation, both revealed and stated preference techniques; econometrics; and linear and non-linear programming models.