Achieving Efficiency Through True-Cost Pricing In Water

True-cost pricing is often put forward as a solution to water scarcity in order to achieve increased efficiency, equity and sustainability. This paper disputes whether this reasoning can be effectively applied to the water market in developing countries. Problematics common to developing countries are analysed to explore whether these are prohibitive in the attainment of efficiency through true-cost pricing in the market for water. Case-studies on water privatizations in Bolivia and Argentina offer insight as to whether true-cost pricing could be implemented. This study finds strong regulatory frameworks and a sufficient level of economic development to be necessary for true-cost pricing to be beneficial, suggesting a very selective use of pricing to provide the correct incentives in the demand management of water in developing countries.