Developing Economic Arrangements for Water Resources Management—The Potential of Stakeholder-oriented Water Valuation - Water and Agriculture: Sustainability, Markets and Policies - page 135

Thus, stakeholder processes are important throughout the lifecycle of these hybrid
systems, from their early conception to their sustained use.
Stakeholder-oriented water valuation to support the development of economic
arrangements
The potential of water valuation to support the development of economic
arrangements
Stakeholder processes determine the success of economic arrangements in water
resources management. As transparency and accountability are known success factors for
existing economic arrangements (World Bank, 1999), they are also likely to be important
for the stakeholder processes leading up to those arrangements. Offering stakeholders a
mechanism for the transparent assessment of important water values is potentially very
useful in helping them reach an agreement on those values, and on the ways to manage
them through the use of regulated economic arrangements.
So far, an explicit and transparent assessment of water values and the way they are
impacted is often absent in the process leading up to economic arrangements. In the case
of New York City, the costs of building a filtration plant were very clear and high enough
to trigger action, but even here, the agreed package of US$ 1.5 billion does not offer a
guarantee that the activities under the agreement will be sufficient to meet official water
quality standards within the time frame of the filtration avoidance granted by the EPA
(NRC, 2000; Hermans et al. 2003). In Quito, the contributions to the fund by the
constituents are set rather arbitrarily, based on their individual willingness and ability to
pay, and the eventual impacts of projects funded by the FONAG on water availability
downstream remain, as yet, largely unknown.
Nevertheless, a certain common understanding on the value of water resources is
necessary to reach an agreement on the design of economic arrangements. Eventually, an
accurate valuation is important to ensure sustainability of these economic arrangements.
In the case of New York City and Quito, those who pay for the activities in watersheds
want to ensure that the money they spend is actually contributing to the provision of
water resources. In the Murray-Darling basin, direct costs of purchasing a certain volume
of water is set in the market place, but the societal transaction costs to enable this market
to function should also be taken into account. Registration of licences, water accounts and
trade, and monitoring of water diversions are all required for a well-functioning market.
The costs of maintaining this institutional and administrative support infrastructure
should be reasonable in relation to the contribution of the markets to improved water
resources management.
In general, valuation is a prerequisite for addressing the question of whether or not
economic arrangements contribute to the sustainability of agricultural water use and
quality. Limits in technical knowledge limit the extent to which the costs and benefits
associated with economic arrangements can be assessed, but nevertheless, some sort of
assessment or valuation needs to be done, both in deciding about new arrangements and
in monitoring progress in using existing ones. But then, how does one help stakeholders
to decide on the appropriate rules and regulations for well-functioning economic
arrangements?