Lecture 1 - Water supply and demand. Water as a public good & market failures

Lecturers:

Dr. Peter Robinson, Environmental Economist
Research Associate, Environmental Economics
Institute for Environmental Studies (IVM),
Faculty of Science, Vrije Universiteit Amsterdam
peter.robinson@vu.nl 

Max Tesselaar, MSc, Environmental Economist
Research Associate, Environmental Economics
Institute for Environmental Studies (IVM),
Faculty of Science, Vrije Universiteit Amsterdam
max.tesselaar@vu.nl    

These lectures by Peter Robinson will introduce you to the fundamental principles of water economics. We will discuss water as an economic good and important basic concepts like the functioning of markets will be addressed. More specifically, it will be discussed how water is assigned economic value based on its relative scarcity and based on the marginal utility it provides to users. We will also look at some very specific features of water that make it different from other goods, e.g. the fact it is essential, a system, bulky and finite. 

Another topic we will discuss is that of market failures which are situations in which free markets do not allocate resources efficiently. Some specific examples of how the water sector is prone to market failures will be elaborated upon, such as the public good nature of water and the free-rider problem; the cost structure of water providers which make them prone to the formation of natural monopolies; and the creation of externalities. It will be looked at how a regulatory approach can ensure that market failures are overcome (e.g. through Pigouvian taxation), compared to a purely market-based approach. Lastly, a detailed example of Coase Theorem as an alternative solution to the problem of market failures will be examined. 

Afterwards, a theoretical economic analysis led by Max Tesselaar related to these topics will be practiced.

Lecture 1 - Water supply and demand, public goods, market failure - slides.pptx

Video:

Water supply and demand. Water as a public good & market failures (part 1)

Water supply and demand. Water as a public good & market failures (part 2)

Practical 1: 

Practical 1 Water as a Public Good.docx

Practical 1 Water as a Public Good (Answers).docx

Exercises excel simulation.xlsx