A New Institutional Economics Approach to Water Resource Management

Abstract

Water policy makers around the world currently face the Sisyphean task of managing water resources that have deteriorated due to overuse and mismanagement. This thesis focuses on water resource management and places emphasis on the water policy reform process, with particular reference to Australia’s most important, yet most problematic, water resource – the Murray-Darling Basin. It emphasises the importance of institutions in dealing with effective water management and the water policy reform process. The neo-classical economics approach is limited in its approach to water resource management. There is scope for alternative, multidimensional approaches. The new institutional economics tradition offers one such alternative. It is argued that a new institutional economics approach, combined with recognition of the challenges of governance, can provide an alternative and more holistic approach to water resource management. Using a levels of institutions approach this thesis identifies aspects of the current approach to management of the Murray Darling Basin that could be improved. It identifies the potential for transaction cost reduction in water markets and successful policy implementation by emphasising the need to focus, alongside economic and political institutions, on social institutions such as cultural norms and behavioural attitudes towards water resources. A new institutional economics analytical framework is used to re-contextualise the water policy debate by centralising the environment within the policy reform process.