The Economic Value of Water

In economics, the value of an item—including water—to a person is defined as the most of something else of value (typically money, but sometimes time) the person is willing to give up to obtain that item (willingness to pay) or the minimum compensation the person would want to receive in exchange for forgoing the item (willingness to accept). These are measures of gross value; they are in principle quantitative; and they are subjective and idiosyncratic to the individual and the circumstances. The economic value of an item is not measured by its price. It is likely to vary with the amount of the item and should not be taken as a constant. A core conceptual distinction is between use value and nonuse value. A person’s use value for an item is the value that she places on the item from motives connected with the use of the item by someone, whether her own use or that of someone else. Nonuse value is the value she places on an item from motives not directly connected with the use of that item by anybody in any tangible way. For example, a person may value water to drink (a use value), but he may also value having water remain in its natural state (a nonuse value). Consumptive uses are use values, but nonconsumptive uses can also be use values (e.g., swimming in a lake). Other conceptual distinctions include that between wet water and paper water (water that exists on paper but is not actually accessible or usable), and that between raw water alone versus water accompanied by the infrastructure necessary to store it and convey it so as to make it available for use.