Water equipment rentals are a fascinating concept in the intersection of hydrology, business, and rental economics. They encapsulate the practice of providing short-term access to water-related equipment – ranging from jet skis and fishing poles for recreational use, right up to industrial pumps and water treatment systems for corporate applications. These rentals are a prime example of the sharing economy at work: a system where underutilized assets are shared by individuals or organizations for a fee, directly from the owners.

The logic underlying water equipment rentals is grounded in the principles of transaction cost economics. Coined by economist Ronald Coase, transaction cost economics posits that firms exist because they can perform certain activities more efficiently than if these activities were organized by the market. The high initial costs of water equipment, combined with the sporadic nature of its use, often make renting a more cost-effective option than buying. Rentals also alleviate the need for storage, maintenance, and disposal of such items, further driving down the transaction costs associated with water equipment usage.

Renting water equipment as opposed to purchasing it outright also aligns with the notion of time value of money (TVM), a fundamental concept in finance that suggests money available now is worth more than the same amount in the future due to its potential earning capacity. The capital saved by renting can be invested in other ventures, potentially yielding returns that surpass the costs of renting.

The mechanics of water equipment rentals are relatively straightforward. Renters identify their equipment needs, search for suppliers either locally or online, make a reservation for the desired duration, and finally pay the specified rental fee. The sophistication of technology has streamlined this process substantially. Innovations in digital platforms and mobile applications have made it possible to compare prices, read reviews, reserve equipment, and even arrange for pick-up or delivery, all at the touch of a button.

For those concerned with the environmental impact of their activities, water equipment rentals serve as a sustainable alternative to buying new equipment. In the age of anthropocene - a proposed epoch dating from the commencement of significant human impact on Earth's geology and ecosystems - the repeated use of the same equipment reduces the need for production of new units, thereby conserving resources and minimizing waste. This concept of circular economy, where growth is decoupled from the use of scarce resources through efficient business models like renting, is gaining global traction, further boosting the growth of the water equipment rental industry.

In terms of challenges, though, the water equipment rental industry is not exempt. Regulatory oversight can pose significant hurdles. These regulations can range from environmental ones that restrict certain types of water activities, to licensing regulations for certain types of equipment or safety requirements that must be met.

Additionally, as with any rental business, wear and tear of the rented equipment is a major concern. This is particularly pronounced in water equipment rentals given the corrosive nature of water, especially salt water, and the often rough use equipment such as jet skis and boat engines undergo.

In conclusion, water equipment rentals offer a prime illustration of the power of sharing economy, underpinned by theories such as transaction cost economics and time value of money. They present a cost-effective, flexible, and increasingly sustainable option for individuals and businesses alike. However, the industry must navigate regulatory hurdles and manage equipment longevity to truly thrive. In this light, it becomes clear that the water equipment rental business is a complex interplay of economic, technological, environmental, and regulatory factors.