Over the last few years water scarcity and pollution have been rapidly growing at both regional and global level. This has generated in many cases increasing intersectoral competition over the use of a limited amount of water resources. To examine the dynamics that such competition may generate in the economy, the present paper proposes a simple dynamic evolutionary model in which two sectors (A and B) compete for the use of water and studies the impact of water pricing on the dynamics of the two sectors in the presence of a population of interacting economic agents characterized by imitative behaviors. As it emerges from the model, when water is underpriced a self‐enforcing process may be observed driving the economy towards a Pareto‐dominated equilibrium. In such equilibrium the economy fully specializes in sector A, characterized by the highest negative impact on the water resource, at the expenses of sector B. The paper shows that a policy of fine tuning that increases water price through the endogenous water pricing mechanism examined in the model can inhibit the convergence of the economy to such an equilibrium point and can progressively shift the system towards the less water‐consuming sector. Finally, assuming a Leontief production function and performing numerical simulations, it is shown how a change in water price can affect the dynamics of the model, and that the same results hold also in a more general, three‐sector context.
