Water Resources and the Problem of Externalities

When managing water resources as an integral part of urban management, unforeseen situations, particularly related to the occurrence of side effects (externalities), often arise. Such effects aggravate the environmental situation and exacerbate global challenges to humanity in the field of water supply and rational use of water resources, including through the introduction of alternative methods of water supply. Providing water to the parties involved and their use by them can lead to externalities – both positive and negative. Problems usually arise in the situation with negative externalities, the elimination or mitigation of which necessitates technological and institutional solutions. The first solutions concern technical methods, such as wastewater treatment, for example, and their repeated or better regular reuse, as it is practiced in the circular economy, the second ones affect institutional solutions that can be divided into three types from a theoretical and methodological point of view. These include: 1) government intervention (practiced in a situation of «market failures»); 2) a Coasen solution (involving market contracting between producers and consumers of negative externalities); 3) a hybrid way of problem solving (combining the market efforts of the parties involved and non-market activities of organizations interested in the public good).