Using the principles of environmental economics to manage water resources

When there are externalities, a competitive market equilibrium is generally inefficient and therefore should be corrected by government intervention. This can relies on price rationing (e.g. pollution tax) or quantity rationing (e.g. marketable permits). Because of the absence of markets for most environment goods and services, specific methods have been developed to put values on costs and benefits resulting from public policies. Indirect methods (e.g. travel cost method) seek to recover estimates of individuals' willingness to pay for environmental quality by observing their behavior in related markets while contingent valuation method uses surveys to ask respondents about their monetary values for non-market goods. The later method is more flexible and apply to no-use value. Nevertheless, the reliability of contingent valuation continues to be a subject of debate.