The Economics of Water: How We Value This Scarce Resource

By Nicholas Brisbois

It is well known that water availability differs greatly around the world. Some communities have a seemingly unlimited flow as an uninterrupted stream of water emerges from their tap at any given moment; others walk for miles to fill small jugs with less-than-clean water. Along with this variability in access to water, comes a great difference in the price of water. People who live in well-developed countries might have a perception that the water they use is relatively cheap. They are accustomed to consuming water on a daily basis, sometimes using great quantities to perform tasks such as washing a car or watering a lawn. However, if those people were to go to a place where water isn’t so plentiful, such as parts of Africa, they would place a higher value on water.

People living in developed countries, such as the United States, on average use 100 gallons of water per person per day. Even though water is very accessible in developed countries, water is still a resource that is experiencing tough economics. In a two-year study of water prices in 30 of the largest cities in the U.S. were recorded for two years, the average cost of water for a family of four for a month using 50 gallons/person/day was $26.23. Changing the consumption to 150 gallons/person/day, the cost was an average of $83.55 a month. When these numbers are compared to the same cities in 2011, these prices grew on an average of 7.2%. In Chicago alone, the price increased 24.9% while in Los Angeles, prices dropped by 11%. With the vast difference between the price of water in Chicago and Los Angeles, we find that  water, perceived to be stable resource in the U.S., can be susceptible to instability.

While the main concern in the United States is the rising costs, in places such as Africa, just having access to water is a large concern. On average, a family in Africa uses five gallons of water per day. Just like the 100 gallons for the average American, this 5 gallons is what the average African family uses for all their daily activities. This huge gap between the first world countries to third world countries is based on the scarcity of usable water. As water becomes scarcer in Africa, the price of water increases. This makes getting clean water that much harder for Africans because they do not make nearly as much money as a family in the U.S. does, yet they have to pay more for usable water. Along with the cost of water itself, over 40 billion work hours are lost each year in Africa because the people, mainly women and children, have to take their time to travel to water and retrieve it.

Water is a necessary resource all around the world and yet it is not that readily available. It is up to global leaders to manage this scarce commodity and the economics behind it. In conjunction, the developed world needs to do a better job recognizing how scarce water can be. Until water can be made into a stable resource, we will continue to see these great differences and instabilities of water prices.

 

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