The reuse of treated wastewater is often discussed as an attractive option for addressing water scarcity, yet systematic water recycling remains rare in many arid and semi-arid countries, for example in the Middle East and North Africa (MENA). This paper addresses how the economics of reuse may contribute to this paradox, emphasizing the role played by unresolved incentive problems with management of the externalities associated with wastewater discharges. A simple conceptual model with two users—one high-value (e.g. municipal/industrial) and the other low-value (e.g. agricultural)—is developed, and related to current conditions in MENA countries. This model is used to explore first the reasons for which widespread wastewater reuse remains a significant challenge, and second a series of policy-relevant cases for expansion of reuse, including their implications for social welfare. MENA countries are then classified into a typology according to how they relate to the cases. The paper closes with a series of recommendations for improving water and wastewater management, and on the appropriateness of reuse, in different types of MENA countries.
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