The economic impacts of water information systems: A systematic review

Abstract

Information systems can yield economic value by providing data and analyses that are useful for improving water operations and planning. Working from a simple typology of water management domains that acknowledges the coupling of supply and demand, we characterize the nature of peer-reviewed and practitioner research that considers or makes reference to the costs and benefits of water-related information. The coverage of the reviewed studies is heterogeneous across domains, sectors, analytical methods, type of information considered, and geographic regions. Studies that discuss costs and benefits of additional information relative to a counterfactual represent a minority (39%) of those reviewed. Most of these counterfactual studies use a model prediction (60%) and/or extrapolate from previous studies (34%); far fewer rely on empirical evidence (24%). Furthermore, measurement of and justification for the proposed benefits and costs – whether monetized or only quantified – remains limited. We also comment on several of the more prominent methodologies for analyzing the costs and benefits of investments in improved water information. This leads to reflections on a research agenda that would enrich what is known about the economic value of water resources information, and thereby perhaps improve decision-makers’ ability to make fruitful investments in information systems. In the absence of more rigorous evidence on the contribution that specific systems make to societal well-being, decision-makers will likely remain tentative about further information investments.

Introduction

Water-related information systems help planners and managers track data and forecast trends in water quantity and quality, as well as a myriad of other changes – political, economic, social, and demographic – that affect water management decisions.¹ These data are analyzed and disseminated to decision-makers operating in a wide range of sectors of the economy. For example, water information systems (hereafter referred to as WIS) inform operations and planning decisions for power generation, agriculture, industry, municipalities, and other sectors, and allow decision-makers to weigh high-level development and sectoral tradeoffs [1]. Yet new information systems only yield economic benefits if the data generated by them are actually used to improve water management or end user decisions. Unfortunately, and perhaps surprisingly, evidence documenting such improvements remains scarce. This lack of evidence undermines the ability of decision-makers to justify decisions to invest in new WIS compared to projects with more easily observed or measured benefits.

This systematic review aims to characterize and provide a critical perspective on research – in both the peer-reviewed and practitioner literature – that pertains to the socio-economic impacts of WIS. While investments in information systems abound in water resources and environmental applications [2], there has been little synthesis of the literature on the benefits they generate. Most prior reviews only consider specific elements of WIS. For example, reviews by Hallegatte [3] and Rogers and Tsirkunov [5] focus specifically on how hydro-meteorological data may produce more effective early warning systems, and thereby reduce disaster losses. A few, more broad-spanning reviews have analyzed the socio-economic benefits of climate forecasts [6], global meteorological and hydrological services [7], and weather and climate services [8].

To organize our description of the existing research on WIS, we first develop a general typology of water-related domains that acknowledges the systems coupling of supply and demand, and then describe coverage of prior work in terms of domains, water-using sectors, the type of information considered, and geographic regions. Our search approach for articles is not limited to the economics literature; we hypothesized that there would be a great deal of relevant and useful literature on the qualitative or quantitative (though not necessarily monetized) value of information systems in disciplines other than economics. In this broad perspective of our review, we find that the coverage of studies related to WIS is heterogeneous along the dimensions described above. Studies that discuss costs and benefits of additional information relative to a counterfactual based on existing partial, limited, or defective information represent a surprisingly small fraction.² Furthermore, among studies that include counterfactual comparisons, measurement of the proposed benefits and costs remains limited, and monetization of these is especially rare.

Following our characterization of work in the prior literature, we discuss some of the more well-developed methodologies that provide input to ex ante economic analysis of the value of WIS investments. These procedures draw on work by meteorologists and economists [9], researchers developing the theory and methods of nonmarket valuation [10], and on value of information theory [11,12]. Unsurprisingly, given its interest in promoting the use of weather-related information and data systems, the World Meteorological Organization (WMO) has the most extensive guidance on appropriate methods [13]. Still, our reading of that guidance is that important challenges remain, relating to i) behavioral assumptions implicit in predicted responses to information; ii) prediction of the counterfactual trajectory that would occur in the absence of information investments; and iii) analysis of the economic consequences of such an alternative trajectory. We believe that these gaps related to understanding of real-world behavioral responses, no-information counterfactuals, and the real economic implications of improved information highlight the need for more careful, empirically-based evaluation work to quantify and monetize the effects of WIS investments.

In the absence of such evidence on the contribution of information systems to societal well-being, decision makers may be skeptical about the value of such investments relative to projects that lead to more tangible and measurable outcomes. Of course, this claim is somewhat speculative. Still, we note that demand for economic assessments of meteorological and climate-related investments did help spawn a large literature focused on the value of those particular systems, from the 1970s through the early 2000s (Clements et al. [14] and WMO [13] provide thorough reviews of that literature). The World Bank has attempted to apply similar methods specifically related to water management, but we believe that the research supporting such methods is considerably more fragmented than it is for hydrometeorological (hydromet) systems, for reasons that we discuss in our review. In making this argument, we also acknowledge that support for work to discern the impacts of WIS projects must be commensurate to the scope of these investments, especially in light of the methodological challenges inherent in doing WIS evaluation and valuation work. These challenges imply that it will not always be justifiable to spend significant resources on ex post evaluations. This clearly has important implications for a research agenda that could generate more useful evidence on the value of information systems investments.

Though decision-makers may find some aspects of our review to be interesting and useful, the primary audience for our paper is the community of water researchers, and especially economists, who have the potential to contribute to gaps in knowledge related to the impacts of WIS. Water resources researchers often bemoan the inadequacy of existing data (indeed, this is one of the most common information problems noted in the articles we reviewed), without perhaps fully considering whether more or improved data would be likely to affect their studies' conclusions, and whether improved analyses would translate into better decision-making. Following a brief explanation of WIS and their costs and benefits in Section 2, we describe the article selection and coding process in Section 3. We summarize the coverage of studies related to water information and the measurement of costs and benefits of WIS in Section 4. In Section 5, we comment on the most important existing methodologies. We discuss the implications of the systematic review and propose focal areas for continuing research in Section 6. Section 7 concludes.