HomeMy WebLinkAboutAllocating Water w/the MarketAllocating Water With the ~erkst
Water is one of our most precious resources. We went to
usa it appropriately rot ourselves today andp~esarve it adequately
rot the future. What is the most reasonable way to accomplish
this goal?
Fo~ many years water waa ~agardad aa virtually a "free"
good. The "supply" was g~eater than tho "demand." When this
proved to be untrue in one a~ea~ other areas were available.
The price of water stayed comparatively low, ~eflecting essen-
tially the cost oF delivery.
Today, in many areas, the "demand" is perceived as exceeding
"supply°" This has happened because sa peculation, development
and technology have Increased, the demands fo~ water have also
increased. In addition, some supplies of water have become
polluted, so the available quantity of quality water ham decreased.
For many products, economics tells us that a market system
would allow price to equate demand and supply and to allocate
the product efficiently to those uses most desired by society
(given the distribution of income.) Wate~ ia not one of those
p~oducts.
A market system for water will not wo~k for several reasons.
(L) Water delivery ia a natural monopoly. It is more
efficient to have one delivery system for an area. Constructing
two piping systems to allow consumers to choose would be a
duplication of costs. Othe~ dalivazy systems (tank t~ucks)
would also be more costly in most situations.
2
Since it ia more efficient, a permit mill be ~lven to
one =afar company in an area. It than has a monopoly, The
utility can then charge high rates because mater ia a product
mith iow price elasticity, Society has always decided that
ouch utilities must be regulatad.
(2) A market system mill not mark for water because th®re
are many externalities in the production of maters the privets
caste differ from the social coats. ( Social coats ere the sum
of all the costa attributable to the production, whether borne
by the producer or by others.)
Considering aquifer mater only the folloming externalities
exist: 1
aa The pumping of water from a mall may cause other =ells
to run dry,orincreaae pumping costs in these other wells.
b. The pumping of mater may cause salt water intrusion
into the aquifer, damaging water supplies of others,
c. The pumping of mater may induce pollution into an
aquifer or portion of an aquifer not previously polluted,
damaging mater supplies of others.
d. The pumping of mate; may affect stream floe and the
uae of stream mater by others.
es ~lthdramel of more water than natural recharge (mining
of water} may affect the land over the equifer~ e~fecting lend USaa
Nat~! monopoly leeds to high prices for mater in areas
where there is a monopoly. £xternalitlea lead~ to a valuation
of water mhich ia too lam. The users of mater consider only
their oma costs and not tho costs of damages caused by their
ual of water.
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p~oduction or ."stero It cannot be left completely to the market.
A different lystem must be round, Hopefully one ehich can lead
to the usa or water In ."eye ihich reflect the values or society
al · iholao It should baa policy ehich elloea everyone some
accael to ."afar (subsidized Ir nacessa;¥)~ discourages masts,
and directs mater into the ueel in ehich ltl value la hlghalt~
subject to changs as vliuaa change.
Some possible al~ocation alternatives sram
parfait system
dacis%on by' "reasonable uae"
restraint ,.hen usa poses po].lut.l, on problems.
I Relationships described In Thomas Dumme and Luna 8.
Leopold, ~at r n nv ronmente P ann n . (San Franaisco~
Freeman & Co., ~978, PP. 223-22go