Incentives in the water chain: wastewater treatment and reuse in developing countries

The proper management of wastewater and its reuse is crucial in order to reduce hazards and maintain a variety of benefits. The merits of improvements in wastewater management are particularly high where effective wastewater treatment is not in place and completely untreated wastewater is reused. This setting applies to many developing countries. There is a need to study the trade-off between benefits and costs of the use of wastewater to establish efficient water management. Moreover, successful water management needs to take the individual incentives of stakeholders into account. The general objective of this thesis is to study how economic incentives of stakeholders determine welfare along the water chain of use, treatment and reuse and how these incentives can be regulated in order to maximize welfare. This thesis identifies four characteristic settings in which either asymmetric information or externalities cause welfare losses, at least in the absence of regulation. For each setting the thesis develops a game theoretic model that can be used to design incentive schemes that govern the generation, treatment, and reuse of wastewater in developing countries such that the highest possible welfare is obtained.