Challenges to Water Resource Management—Role of Economic and Modeling Approaches

The field of water management is continually changing. Water has been subject to external shocks in the form of climate change and globalization. Analysis of water management is subject to disciplinary developments and inter-disciplinary interactions. Are these developments well documented in the literature? Initial observations on interdisciplinary literature suggest that results are fragmented, implying that a state-of-the-art review is needed. The objective of this paper is to close this gap by reviewing recent developments in water economics that address the increasing perceptions of water scarcity by looking first at changes in supply and quality of water, and then at impacts of climate change on water extremes. Among responses to such challenges, the paper identifies changes to water use patterns by including and co-managing water from different sources—surface and groundwater, wastewater, and desalinated water. Technological advancements also are among the resources that address water challenges. Water challenges reflect also on management of internationally shared water. A recent surge in scientific work identified international treaties as playing a significant role in water management. The paper reviews recently employed economic tools, such as experimental economics, game theory, institutional economics, and valuation methods. And finally, it explores modeling approaches, including hydro-economic and computable general equilibrium models that are being used to deal with water challenges.