Economic valuation of water: theoretical considerations and an applications to agriculture in the zambezi basin countries

This work is concerned with the theoretical background and the methods most frequently used for valuing water in its different uses in general and for the sector of agriculture in particular. It highlights the importance of regarding water as an economic commodity and, consequently, of valuing it adequately. Proper valuation is an instrument-Among others-that allows an efficient allocation and conservation of the resource. Some basic concepts and definitions that economists use in order to cope with the topic of economic valuation of natural resources are addressed, such as: value, willingness to pay, willingness to accept compensation, market and non-market goods value, consumer surplus, and producer surplus. The implications of considering water as an economic good are discussed. A typology of different methods currently available to value water is presented. A simple method was sought for assessing the economic value of water in agriculture at a regional level. The hypothetical situation is that of having data on crop production much aggregated in space (national level) and time (annual basis), but not having data on production costs nor data on quantity of water used bye or applied to the crops. To address such a situation in this research a simple method is proposed, whereby a production model of the relationship between crop yields and water shortage is linked with a value-added approach for imputing economic value to the water evapotranspirated bye the crops. The proposed method was applied to assess the (average and marginal) value of evapotranspiration water for several crops in the eight countries that share the Zambezi basin, for the year 1995. In accordance with the aggregate nature of the available data, the results obtained are valid at a national level, for comparing the water values for the same crop between countries and for different crops within one country. So, significant differences were found in water values between crops and countries. In a policy context, according to one of the economic principles that rule efficient resource allocation, these findings suggest that beneficial trade-offs of agricultural water could be fostered, which would improve the national welfare and the health of farmers in those countries. As mentioned, the results obtained from this research are valid at a national level. If analysis is required at a specific local level, relationships that explicitly take into account in situ features of land and water resources and crop particularities must be found, through either very well planned data collection, experimentation, mathematical modeling or simulation.Maestrí