One of the fundamental lessons from economics is that incentives matter. But too often this lesson is ignored when it comes to natural resource and environmental policy. Governments around the world continually subsidise resource use, encouraging wasteful practices and pitting bureaucracy against the environment. This has been especially true of water. Dams and delivery systems are constructed and operated with little thought given to efficiency or environmental policy. It is said water runs uphill to money. It gushes uphill to politics. Not only do projects fail benefit-cost tests, but they often destroy the environment in the process.
