Water Resource Economics

💧 Water Resource Economics was the foundation of Professor Hanke's academic career. His pioneering work on water pricing, demand, and privatization established him as a leading scholar in the field and led to his appointment to President Reagan's Council of Economic Advisers.

Overview

Professor Hanke began his academic career in 1969 as a water resource economist at Johns Hopkins University, in the Department of Geography and Environmental Engineering (now the Department of Environmental Health and Engineering) — the premier water resource engineering department in the country. The department was founded by legendary sanitary engineer Abel Wolman. Hanke collaborated extensively with world-renowned sanitary engineer John C. Geyer.

Core Research Areas

💰 Water pricing and demand — Econometric modeling of consumer response to water price changes under dynamic conditions.

📊 Benefit-cost analysis of water projects — Rigorous evaluation frameworks for public infrastructure investment decisions.

🔧 System design — Engineering-economics interface for optimal water infrastructure design.

🔍 Leak detection and control — Analytical methods for identifying and reducing distribution system losses.

🔢 Water meter installation impacts — Pioneering event-study methodology for assessing conservation policy effectiveness.

🏙️ Municipal water system privatization — Economic case for private ownership and operation of public water utilities.

Landmark Work

🏆 Methodological Breakthrough: Professor Hanke conducted the first event study of the impact of water meter installation on water use — a methodological breakthrough that fundamentally changed how utilities assess conservation policy. This work, based on his PhD dissertation, introduced rigorous econometric techniques to a field previously reliant on engineering estimates.

Hanke also developed sewer interceptor design criteria still commonly used today in Europe, demonstrating the practical engineering-economics synthesis that characterized his early career.

Advisory Work

Professor Hanke provided expert economic consulting to leading water utilities and engineering firms worldwide:

Reagan Administration: Water Portfolio

In 1981, Hanke was appointed Senior Economist on President Reagan's Council of Economic Advisers (CEA), where his primary responsibility was the White House's water portfolio. He led a team that rewrote the federal government's *Principles and Guidelines for Water and Land Related Resources Implementation Studies*, incorporating more rigorous benefit-cost analysis requirements that transformed how the federal government evaluated water and land infrastructure investments.

This work directly applied Hanke's academic expertise on benefit-cost methodology to national policy — one of the clearest examples in his career of scholarship translating into government action.

Current Involvement

Professor Hanke remains a member of the Johns Hopkins University Global Water Program, where his current focus is on municipal water privatization — bringing full circle his career-long interest in water economics from academic research, to government policy, to ongoing advocacy for market-based water management.

Key Publications

Editorial Positions (Held)

Professor Hanke served on the editorial boards of the leading journals in water resource economics and engineering:

• Associate Editor — Water Resources Bulletin
• Associate Editor — Water Resources Research
• Economics Editor — Water Engineering and Management
• Editorial Board — Land Economics

Research Impact: The Water Meter Event Study

Hanke's 1969 doctoral dissertation — on the impact of water meter installation on municipal water demand — pioneered the use of event study methodology in environmental economics. The finding: installation of water meters typically reduces water consumption by 20–40%, demonstrating that price signals work even for a basic necessity like water. This insight was applied to water conservation policy across the United States and Europe.

The methodology Hanke developed — using the before-and-after installation event as a natural experiment to isolate the demand effect of metering — became a template for policy evaluation research. It remains one of the most cited contributions to the empirical water economics literature.

The Case for Water Privatization

Hanke's argument for private water utilities synthesized his water economics research with his broader privatization scholarship. The core argument: private water utilities, subject to market competition and profit incentives, deliver better service at lower cost than public utilities chronically starved of investment capital.

Public water systems face a fundamental political economy problem: water prices are kept artificially low because raising them is unpopular, which means capital investment is perpetually underfunded, which means infrastructure deteriorates, which means service quality declines. Private ownership with regulated returns breaks this cycle by aligning investment incentives with service quality.

Industry Advisory: Veolia and Lyonnaise des Eaux

Hanke's advisory work for Compagnie Générale des Eaux (now Veolia) and Compagnie Lyonnaise des Eaux — the world's two largest private water companies — in the 1970s–80s brought his academic research directly into the commercial world of water infrastructure. This work influenced how those companies priced their services and engaged with municipal clients, translating academic insights about demand elasticity and benefit-cost analysis into commercial pricing strategies and public-private partnership negotiations.

Hanke's role as economic adviser to both firms gave him a first-hand perspective on how private water management actually works in practice — reinforcing his advocacy for privatization while also deepening his understanding of the regulatory frameworks necessary to make private water utilities accountable.

Related Topics

• Free Market Economics
• Ideas & Research