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	Economics Economic Principles The Value of Water

Economic Analysis and Water Planning

Economic analysis plays an important role in water planning. Proper use of economic tools allows policy makers to ensure that the benefits of individual water supply projects exceed their costs. The use of consistent economic criteria and analysis also allows alternative projects to be compared against each other on an equivalent basis. Failure to incorporate appropriate economic analysis severely hampers the ability of policy makers to direct scarce public funds to those projects that produce the most benefits.

Need for Ecomonic Analysis Improvement
In December 2000, a group of noted resource economists from across the state gathered to discuss the use of economic analysis in the regional planning process. The economists noted in their report summarizing the conference that rule changes should be developed to incorporate "the use of appropriate economic principles in Senate Bill 1 Water Planning at the regional and state-wide levels." They also state that:

The result of not incorporating valid economic theory into water resources planning assessments is that some projects may appear to be the best choice on the surface, but in reality may not be optimal once all the economic realities are considered. In fact, projects may actually not have benefits that exceed costs, but this cannot be determined without comprehensive benefit-cost analysis and use of discounting procedures.

Without incorporation of these basic principles, it is hard to divine any meaning or significance of a project's being "in the region's plan."

Because full economic analysis of all projects proposed in the regional plans has not been performed, we simply cannot say: 1) that any individual project produces benefits that are greater than its costs, or 2) that any project produces greater benefits than other projects (for the same amount of investment).

Additional Resources

Economic Principles for Sound Water Planning:
An introduction for Regional Water Planning Groups in Texas


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