study illustrates how the interest group model, the politician-voter model, and the bargaining approach can all be found in water pricing (Cuzan, 1983).

However, as a framework for describing this literature, it is useful to understand the reasons for reform, the institutions undergoing reform, who is supporting/opposing the reform and compensation mechanisms, and possible international influences on the reform process (Dinar, 2000). This framework traces reform efforts from its initial stages to post-reform effects, and resembles similar examinations of reform found in White (1990), Krueger (1991), Williamson (1994) and Haggard and Webb (1996).

# **5.2.1 Reasons for Reform**

In many cases reform efforts directed at water pricing are simply the results of financial crisis, low cost recovery percentages, deteriorating facilities, and increasing water demand (e.g., for Asia - Easter, 1987; for Egypt - Wichelns, 1998; for Pakistan - Wambia, 2000). However, there are often other motives such as linking water sector reform to other macroeconomic reforms that are indirectly related (e.g., for Morocco - Diao and Roe, 2000; for Yemen - Ward, 2000). Just et al. (1997) observe that standard economic analyses contend that economic efficiency is improved by equating prices and that current deviations are the result of political power. A different interpretation for Israel and Jordan are concerns for food security, infant-industry motivations, settlement policies (national security), and equity issues. It may be more efficient to partially equalize water prices when new water supplies are developed. Such political power framework incorporating lobbying has been used to evaluate optimal environmental regulation mechanisms. The mechanism of environmental regulation will depend on the weights society places on laborers and capitalists (Chen et al. 1998).

# **5.2.2 Institutions and Reform**

As previously mentioned, the institutional framework and its changing nature are intrinsically lined to political economy considerations. These considerations include existing institutions, the power system, and the electoral system.

# _Existing Institutions_

Decentralization of existing water institutions often comes with some reluctance (Wilson, 1997), which may impair the effectiveness of reform. It is often necessary to actively engage existing bureaucracies in the reform process (de Azevedo and Asad, 2000) or to induce farmers to view water management as a ,ublic good (Bromley, 2000) in order to overcome political transaction costs in reform. Garrido (1998) compares allocations between conventional profit maximization for an individual farm, an intra-community water market, and to an inter-community water market. Empirical estimates were generated using EPIC (see appendix) as well as on site experimental research. The resulting allocations were shown to be sensitive to transaction costs, but that decentralization generates a range of short-run probable gains.

Rausser and Zusman (1991) examine the political history of collective action in Western US water resource systems. Their model includes a (n+2) player game: the CWA seeks to maximize cost efficiencies and political recognition, n-districts seek to maximize profit, and the government pursues both selfish and unselfish "public interest" goals. The resulting model determines water prices in what Rausser and Zusman term as the "Hydrological-Political34