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Using Economic Valuation Techniques to Inform Water Resources Management: A Survey and Critical Appraisal of Available Techniques and an Application

Science of the Total Environment 365 (2006) 105–122
Ekin Birol a, Katia Karousakis b, Phoebe Koundouri c
a Department of Land Economics and Homerton College, University of Cambridge, Hills Road, Cambridge, CB2 2PH, UK
b Department of Economics, University College London, Gower Street, London, WC1E 6BT, UK
c Department of International and European Economic Studies, Athens University of Economics and Business, Greece, 76 Patission Street, Athens 104 34, Greece

Abstract: The need for economic analysis for the design and implementation of efficient water resources management policies is well documented in the economics literature. This need is also emphasised in the European Union's recent Water Framework Directive (2000/60/EC), and is relevant to the objectives of Euro-limpacs, an EU funded project which inter alia, aims to provide a decision support system for valuing the effects of future global change on Europe's freshwater ecosystems.
The purpose of this paper is to define the role of economic valuation techniques in assisting in the design of efficient, equitable and sustainable policies for water resources management in the face of environmental problems such as pollution, intensive land use in agriculture and climate change. The paper begins with a discussion of the conceptual economic framework that can be used to inform water policy-making. An inventory of the available economic valuation methods is presented and the scope and suitability of each for studying various aspects of water resources are critically discussed. Recent studies that apply these methods to water resources are reviewed. Finally, an application of one of the economic valuation methods, namely the contingent valuation method, is presented using a case study of the Cheimaditida wetland in Greece.

Keywords: Water resources; Economic value; Cost-benefit analysis; Hedonic pricing; Travel cost; Contingent valuation; Choice experiment