Scalable solutions to freshwater scarcity: Advancing theories of change to incentivise sustainable water use

Increasing competition for freshwater underscores the need for scalable solutions to manage and mitigate the impacts of freshwater scarcity. Appropriate rules and incentives can facilitate a shift to more sustainable patterns of water use, including water reallocation to restore rivers and aquifers in regions already experiencing excessive water extractions. Despite their potential, water markets and other incentive-based approaches to manage water have struggled to scale up beyond pilot initiatives due to political resistance, financing shortfalls and data deficits. Recent advances in our understanding of incentives for sustainable water use can help to overcome persistent barriers that have hindered past efforts. We provide a review of two well-established yet disconnected fields of research and practice, and establish an agenda at their intersection: (i) incentive-based approaches to water allocation and management and (ii) theory-of-change approaches to strategic development and impact evaluation. Doing so allows us to situate incentive-based approaches to water allocation in a broader context, identifying the potential synergies and frictions with wider processes of institutional reform and infrastructure development. An explicit focus on theory-of-change approaches can identify the key assumptions and knowledge gaps hindering progress, such as drivers, enabling conditions and sequencing issues for different approaches, and the key factors constraining adoption in different contexts. We identify three areas where interdisciplinary research can support the development, implementation and evaluation of theories of change for water markets and other incentive-based water management: (1) identifying where and when to develop different types of incentives for sustainable water use, (2) designing and testing incentives as part of a broader package of institutional reforms and infrastructure investments and (3) systematically evaluating the impact of incentives using diverse data sources (from satellites to the field), multiple methods and multiple criteria. A global network of water researchers and practitioners, supported by common frameworks and observatories, can enable systematic learning from experiments to strengthen incentives for sustainable water use and scale up their adoption.