Expanded   Summary

The blue economy implies all economic activities related to the oceans, seas and coasts. Water is actually «liquid gold» – the most important resource on Earth, without which people will not be able to live or develop many types of business. Over the past 40 years, the world's water use has increased by 1% every year, and it will continue to grow until 2050. However, the population of some low- and middle-income countries are already facing water shortages, and over the years they will become more and more. According to a new report prepared by participants and partners of the UN–Water mechanism and published by UNESCO, today 2.2 billion people still live without access to clean drinking water, and 3.5 billion do not have access to safe sanitation. Thus, the UN goal of ensuring such access for all by 2030 is far from being achieved, and there is reason to fear that this inequality may continue to grow.

Nobel laureates in economics Paul Milgrom and Elinor Ostrom analyzed and proposed mechanisms for the assessment and optimal allocation of water resources, as well as effective options for their use.

Paul Milgrom, professor of Humanities and Natural Sciences at the Stanford Institute for Economic Policy Research (SIEPR), as well as the Stanford Graduate School of Business (GSB) and the Faculty of Management Sciences and Engineering at the School of Engineering, shared the Nobel Prize in Economics in 2020 with Robert Wilson for pioneering work in the field of auction design to create markets for goods and services, which cannot be sold in traditional ways.  Now he is solving another problem of the XXI century – water shortage.

According to Milgram, a more effective approach would be to establish a new ownership right aimed at delivering water to those who need it most and are willing to pay for it. Among other things, this new right will be based on how much water is consumed rather than diverted, and adjusted as rainfall changes from year to year. And as water becomes a financial asset, Milgrom and Ferguson suggest that farmers and other rights holders will have easier access to loans or other capital to pay for investments in water-saving technologies.

To implement this theory, in 2020, the CME Group released futures for the California water index. This is how water joined other commodities traded on Wall Street. This step was a reflection of society's fear of water scarcity. Farmers, hedge funds, and municipalities can insure themselves or bet on the future availability of water in California, the largest U.S. agricultural market. The Nasdaq Veles Composite Index was launched in 2018.

There is also another, almost invisible resource of the common water basin – groundwater. The importance of groundwater stored underground in soil, sand and porous rocks called aquifers in solving global water security problems cannot be overestimated. The dependence of communities on water and the fundamental economic issues of managing this public domain are highlighted by Elinor Ostrom, in 2009. She became the first female recipient of the Nobel Prize in Economics. As a political scientist, Elinor Ostrom's research methods differed from those of most economists, and she conducted field research on the management of natural resources in small local communities, such as pastures, fishing waters in Maine and Indonesia, and forests in Nepal.

Elinor Ostrom proved in her works that some public property (forests, pastures and even fish stocks in the seas, lakes or underground water sources) can be very effectively managed by associations of their users and neither direct state control nor privatization of this public property is necessary for this. That is, there is a third management model – the formation of agreements within the communities themselves and the independent collective management of public resources. Ostrom and many of her co-authors have developed a comprehensive «socio-ecological systems Framework (SES)», which now houses much of the still-developing theory of shared resources and collective self-government.

On June 30, 2023 the Parliament of Georgia adopted in the third reading the Law "On Water Resources Management", which defines the principles of basin management, according to which the territory of Georgia will be divided into seven river basins, for each of which management plans will be developed. In addition, the law establishes economic mechanisms for sustainable water use and nature protection, which are based on the principle of "paid environmental management". In particular, the licensing will be subject to the water use of a surface water body and a fee will be charged. The entry into force of measures under the new law is planned in stages, and the full implementation of the reform is planned by 2030.

The theoretical studies can have significant practical benefits for Georgia, since water is the first need of human life after air, and that is why it is considered a unique mineral, in terms of which Georgia is one of the richest countries. In general, Georgia, in our opinion, is an attractive investment tool against the background of global water scarcity.