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Economic Value Of Water

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Category: Miscellaneous

Autor: anton 11 May 2011

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Economic value of water

A Multi-Criteria Analysis approach


Water is an essential resource that has a multiplicity of use in domestic, Industrial, agricultural, hydropower generation, mining, environmental etc activities but the present unsustainable use and mismanagement in the Kafue Basin of Zambia has put pressure on the resource and conflicts among stakeholders have emerged due to the diminishing quality and quantity of the water from the main source- the Kafue River.

The current trends in the appropriation of water resources of the Kafue flats for human use, and particularly for irrigated agriculture are not sustainable. The water uses have risen due to low taxes and heavy subsidies on water by the Government of the republic of Zambia. Compounded to this problem, are the issues of water scarcity, pollution, conflicts and overdrawn aquifers. The knowledge available on the water demands clearly indicates the necessity for the establishment and implementation of effective legislation, which devises optimal water distribution and utilization in order to achieve socioeconomic development in a harmonious way.

Therefore, conceptually correct and empirically accurate estimates of the economic value of water are central to rational allocation of scarce water across locations, uses, users, and time periods. This kind of information would enable the institutions responsible for the management of the water resources to effectively plan for a coordinated and sustainable water management in conformity with the national development plans.

Study Area

The Kafue basin has a total catchment of 154000 km2 which is nearly one fifth of the total area of the Country. The Kafue River extends for 1,577 kilometers, rising from the northwestern and Copperbelt provinces of Zambia near the border with Zaire to the Zambezi River. On its way southward the river passes through the Lukanga Swamps and then curves eastward at Itezhi-tezhi to enter the Kafue Flats. In Zambia 90% of all economic activities takes place in the Kafue basin and is home to the mines, petroleum refineries, fertilizers manufacturers, hydropower generation, agriculture etc and over 50% of the 10.4 million population reside in the major cities in the Kafue basin with their sole water supplies coming from the Kafue river and its small tributaries. (CSO, 2003).


The fact that market based valuation would provide a basis for policy makers to decide on rules on how best to govern the water resources in the basin, these rules usually exclude social ones thereby fail to meet the desired outcomes. The concept of value ought to take into account both economic and social concerns so that the society as a whole and their environment are in a balanced state of equilibrium. Therefore to adequately reflect the true value of the water resource, the valuation should also define the relationship between society and nature and how the interface between society and the ecosystems has evolved over a period of time.

Total economic value TEV of water is therefore an extended concept that would account from the perspective of both the private and social concerns. The willingness to pay (WTP) measures what a consumer is willing to pay for a resource in a market but would not be applicable in certain societies where different mechanisms such as barter, kinship, reciprocity etc coordinate the exchange of goods. Therefore it is crucial to include both the socio-economic and natural scientific aspects in the TEV of the water resource. The essence of socio-economic valuation is to determine how society is affected by the many functions that are derived from such resources. (Gatzweiler, 2003)


TEV = (DUV)pr + (DUV)so + (IUV)pr + (IUV)so + (OV)pr + (OV)so+ (BV)pr + (BV)so + (XV)pr + (XV)so


DUV = Direct Use value BV = Bequest value OV = Option value

IUV = Indirect use value XV = Existence value

so = social pr = private

Therefore the multiple goods and services generated by the water resources, together with the socially equitable distribution of welfare gains and losses are inherent in the usage. However, it should also be recognized that, the social welfare account includes not only economic welfare stocks and flows but also changes in properties, such as sense of identity, cultural and historical significance of the water resources components. The value data compiled in this context, vis-Г -vis view points of different cultural and other interest groups give rise to different degrees of support for alternative decision-making procedures and the underlying valuations elicited via the social discourse process (Turner et al, 2004).

Relevance and justification

The study is intended to contribute to the national capacity building for water management. From the foregoing it can be seen that the study is important since it will contribute to the determination of ways of how water could be managed on a sustainable and efficient basis without incurring great negative externalities to the resource as well as to the environment.

The effect of human population and its characteristics on water use, distribution, abundance, and quality ought to be addressed and recommendations and strategies of water conservation should be made to answer future trends and scenarios in the Kafue basin.

Many of the major institutions benefiting from the Kafue waters hold comparable and complementary views on what potential actions would best serve the future of the water resources in a sustainable manner, such views include two important components namely:-

В• Harmonization of legislation that relates to water management and other natural resources

В• An inter-sectoral approach to deal with the issues of the Kafue basin and their rich water resources

Hence, whilst it is recognized that there are conflicting objectives among different institutions and groups, notably the trade-off between energy demands, environmental and agriculture production, domestic demands etc, the positive and co-operative nature of the suggestions for sustainable resource management and future actions provide a strong justification and relevance for potential change and here, the study will act as one of the pointers to reaching a rational consensus.


Many natural resource valuation methods such as the Contingent Valuation, Travel Cost Method, Hedonic Pricing, Dose-response, use of production functions etc exists, however these predominantly use market information to elicit values and measure them in monetary units. The proposed theoretical model in this research is a stated preference method of Multi-Criteria Analysis (MCA) technique as this is seen as a natural approach in analyzing information for decision-making since the information expected cannot be brought into a single unit of measure. MCA takes into account both the tangible and intangible costs and benefits and hence the balance of effects can be expressed in different units.

To capture different views of stakeholders in the basin, the model will be used together with the contingent valuation as this mix would allow simplifying significantly the high degree of complexity in this study. The model will further be implemented and applied in an empirical setting of the different stakeholders in the basin.

The general criterion is that of quantity and quality of water supplies in the basin and how this affects sectoral business decisions of the above named stakeholder. For instance, in the case of farmers, what weights do they attach to irrigation technology, water sources, cropping area and pattern, type of enterprise, marketing facilities, climatic conditions etc and how they model risk in their every day use of water? An alternative is preferred to another alternative if it scores better than the other alternative in the majority of important criteria

For the farmer and hydropower generator, quantity will be of higher weight than quality whereas in the case of water utility companies, quality maybe of higher weight than quantity etc. It is from these tradeoffs that different stakeholders will attach different values to water. It is assumed that the aggregation of these values would approximate closely to what the true value of water in this region is. However, it must be mentioned that in economic valuation, the mainstream criterion is that of economic efficiency as this is the most expeditious and scientifically sound way in decisions regarding allocation of resources.

For a chosen criterion, the relative difference between the alternatives by preferential functions is expressed in order to compare criteria. The importance of the criteria is expressed by attributing weights to it using the following formula:


k = the rank order of the criteria j

(With k =1 for the most important and k = n for the least important criterion

Then the aggregation of the preferential indicators is calculated by:-


ГЄj(a,b) = f(ej(a) - ej(b)) if a >j b

= 0 if a ВЈj b

ej(a) = score of alternative a for criterion j

ej(b) = score of alternative b for criterion j

gj = relative weight of criterion j

n = total number of criteria

The preferential indicators are compared, thus:-

P is >>> if P(a,b)>>>P(b,a) В– strong preference

P is > if P(a,b) > P(b,a) В– weak preference

I if P(a,b) = P(b,a) and both indicators have low values - indifference

R if P(a,b)=P(b,a) but both indicators have high value В– incomparable

Determination is done via a PIR-filter where a threshold value has been preset so that the order of alternatives is desired or by a distance index (if further analysis is desired) - distance index determines the position of the alternative in a min-max interval ( i.e. pareto efficiency alternatives)

Finally the conclusions are drawn on the basis of the outcome and sensitivity analyses performed.

Expected Results

В• A thorough scientific knowledge base that would help to safeguard the life support and other economic services provided by the water in the Kafue Basin in a sustainable way through the estimated economic valuation.

В• Key processes that would help transform inform water markets into formal markets in the Basin and the rest of the Country as a whole.

В• Policy indictors for efficient and meaning institutional inter-play and spatial fit of regulations particularly on the following items the current water act of the laws of Zambia neglects.

o Groundwater

o Environment as a key user

o Traditional institutions

References consulted

Agudelo J.I (2001) the Economic Valuation of Water. Principles and Methods В–IHE Delft.

Chipongo.A. (2005). Economic Value of Water in Agricultural Production. A Case Study of the Kafue Flats of Zambia. Unpublished Master thesis В– University of Gent. Belgium

Central Statistics Office -CSO (2003) Summary Report 2000 Census. Zambia 2000 census of population and housing, Central Statistics Office, Lusaka Zambia.

Gatzweiler F. (2003). The Changing Nature of Economic Valuation В– Indigenous Forest Garden Values in Kalimanatan, Indonesia. Institutional Change in Agriculture and Natural Resources Volume 16. Duetsch Bibliothek

JosГ© A. GГіmez-LimГіn Laura Riesgo Manuel Arriaza (2003) Multi-Criteria Analysis of Factors Use Level: The Case of Water for Irrigation

Mutale, M. and Mondoka M (1996). Water Resources Availability, Allocation and Management and Future Plans for the Kafue River Basin. Lusaka, Zambia: Department of Water Affairs, Ministry of Energy and Water Development.

Turner K, Stavros G, Clark R, Brouwer R and Burke J (2004). Economic Valuation of Water Resources in Agriculture. From Sectoral to a functional perspective of natural resources in: FAO (2004) Water Reports Series

Williams, G.J., 1977. The Kafue Hydro-Electric Scheme and its Environmental Setting, In Development and Ecology in the Lower Kafue Basin in the Nineteen Seventies, eds. G.J.Williams and G. W. Howard, 13-27. Lusaka: Zambia: University of Zambia.

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