unrealistic means of encouraging significant reductions in fresh-water demand because the price
changes needed to generate a 15% fall in demand would have reduced farm income by 25%.
Sensitive physical, social, institutional, political and economic contexts of many regions
and countries have left water pricing a contestable policy option. When transaction costs are
high, it is difficult to move toward market pricing policy (Coase). Johansson et al., (2002)
concluded that transaction costs make the implementation of water pricing methods difficult. In
response to high transaction costs, political economy concepts and new institutional approaches
have been introduced into the analysis of water pricing reforms (Dinar). Sampath; Rosegrant
and Binswanger; Tsur and Dinar (1997); and Saleth and Dinar pointed out that water pricing may
have a better chance of succeeding with minimal costs and less political opposition only when
the institutional changes within the water sector can rapidly promote decentralization and
privatization. However, the problem is that different countries and regions have different
situations with respect to economic development, demographic growth and technical progress.
Countries also differ in their levels of economic and political reforms, international
commitments, social values and ethos changes, and natural calamities, which serve to motivate
and speed up these institutional changes.
In summary, limited acceptable ranges of pricing have weakened the effectiveness of
water pricing policy. High transaction costs embodied in implementation have resulted in slow
institutional change in most developing countries that depend on irrigation water. This has
deferred opportunities for saving water resources with water pricing policies within a reasonable
time frame in these countries. There is a need to circumvent existing water pricing policy
difficulties by examining other strategic policy options, which is also the major objective of this
paper with a focus on Egypt and Morocco.
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