Doubt about using price to achieve 20% by 2020.

 This is where the economists tell me that the way to do it is price. You could do this whole thing using demand curves and raising the cost of water up to where people use 20% less, dust off your hands and go home.

Here are my objections, and then my further thoughts:

1. That sucks for people. They don’t like paying that much more for water.

I myself am fairly unsympathetic to that; I’m not particularly interested in supporting lifestyles dependent on cheap water. Besides, we’re all paying for the un-internalized costs of water in the form of giant-ass bond measures. But, here’s the thing. People FLIP OUT. They moan and whine and turn over boards of directors when water prices go up. They drag out the 218 process indefinitely. Raising water rates isn’t an easy administrative solution. It is a big political hassle at the district level.

2. The standard objections to market-based allocations are true and relevant for water.

People don’t start with equal amounts of money, so they don’t get to express their preferences for water use evenly. That’s fine for luxury goods, but feels pretty unjust when you’re talking about water to satiate thirst, and daily conveniences, like washing things and landscaping.

Exclusion is inhumane, and for that matter, can’t be enforced. People will find a way to get what they desperately need.

3. Here’s the heart of my objection. I think that raising prices (or using a market to set prices, which is not exactly the same) is a very powerful technique that goes to strongly toward the end of an economically efficient use of water. No one has yet convinced me that I want an economically efficient use of water. Actually, no one tries to make the case. The assumption that the economically efficient outcome is self-evidently better (because it is economically EFFICIENT!) is so overpowering that no one tells me what it will look like and whether it will match my values. I suspect it will not, so I’m real leary of very powerful mechanisms that will create that outcome. I think there are positive externalities to some (but certainly not all) inefficiencies, so I don’t want them erased. I’m thinking of inadvertant habitat on farms, of public goods like parks and urban forests, of farming communities that stay populated because they aren’t on the industrialization treadmill.

Next economists tell me that with the gains from economically efficient water uses, we can afford to support those things I value. Maybe we could, but that doesn’t mean we will. So I am skeptical about the whole business, and not yet ready to support water markets.

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10 Comments

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10 responses to “Doubt about using price to achieve 20% by 2020.

  1. Mr. Kurtz

    I think if you use sharply tiered water rates, it can be quite equitable. The basic allocation, say 75 gallons/day/person should be very inexpensive, so that nobody would go without. (Yeah, some folks will game the system and say they have 11 children, but there can be penalties for lying, and the number of people living in a household can be posted on a website, so neighbors can fink on each other). Beyond that, people who want a private golf course or duck marsh in their back yard will have to pay for the privilege.

  2. CharleyCarp

    What about discounts/subsidies for efficiencies? People have no business flipping out if their bill stayed the same, while the guy next door cut his by 25% by implementing a set of measurable measures.

  3. Mr. Kurtz

    Excellent point! If there are both carrots and sticks, the system works better. That’s why the command & control model for reducing agricultural consumption is a dead letter. All it does is impose a cost, with no concomitant benefit. Auctions allow growers to be either buyers or sellers. That model is too complex for residential users.

  4. Wes

    I think that I agree with the owner of this blog. There are those whose income is such that you will never be able to raise the water rates high enough to make a difference, the millionaire who during a recent Southeast Drought allowed his Atlanta mansion’s sprinklers to run all day, every day just because he could, come comes to mind. The power of the market will only affect the poor, and probably never even the middle class professionals whose status is tied to their having a swimming pool in the back yard.. such as a neighbor of mine where the husband is a policeman and the wife is an elementary school teacher. I doubt you will be able to raise their rates enough to force them to give up their pool.

  5. Mr. Kurtz

    Actually, pools consume a surprisingly small amount of water; just what evaporates. Using a pool cover controls a lot of that loss. If some rich goon wants to spend $15,000 per month watering his lawn, so what? It’s a free country, and he’d just go spend the money on sport-figure bobbleheads or porn otherwise. As long as the marginal price of water used to excess is high enough to reimburse the water agency for all the costs (including environmental mitigation), it’s really nobody’s business. And the poor are covered by the cheap or free basic allotment.

  6. onthepublicrecord

    As long as the marginal price of water used to excess is high enough to reimburse the water agency for all the costs (including environmental mitigation), it’s really nobody’s business.

    That’s a value judgment (usually one that comes from training in economics), not a truth of the world. Other people hold different values, like that a rich goon’s private lawn isn’t the use of a scarce resource that brings the most benefit to the most people. (This mistake comes from the mistaken perception that people’s preferences are measured in dollars spent, which is only accurate if everyone started off with the same amount of money. The generic criticisms of markets that economists accept as known and then move past because everyone knows that those are always the flaws of market systems nevertheless cause unjust outcomes in the real world.)

  7. ho for coho

    I thought water was considered a public trust resource and therefore had to be used for the public good: commerce, recreation, fisheries, navigation, etc. Furthermore, does “beneficial use” extend to municipal water supplies? A rich guy watering his immense lawn wouldn’t seem to qualify as a beneficial use or meeting the terms of using a public trust resource.

  8. Mr. Kurtz

    A lawyer could provide a more definitive answer than I could about beneficial use, but I suspect almost any water agency that provisions water to residences (regardless of the use that water is put to) can be secure in its claim of beneficial use.
    I sure don’t want to live in a country where someone else decides whether the money I spend is spent in what they imagine is a worthy manner or not. Could be water, could be antique books, could be bobblehead dolls. NOYFB!

  9. dfb

    Yes, beneficial uses includes municipal uses. There are a variety of water rights that have a number of legal principles/documents that apply to all the water rights available. Those legal principles are: 1) public trust doctrine; 2) California Constitution; 3) personal property; 4) contract law; and 5) to some extent, the U.S. Constitution. First, the public trust doctrine says that all waters are subject to a public trust and that the state, as trustee, has a duty to preserve this trust property from harmful diversions by water rights holders. This is intended to protect navigable waters/shores/shorelines and nature. Second, the California Constitution has several commands including that all water use must be reasonable and beneficial. My understanding is that the California Constitution could not override the public trust doctrine, which is also part of U.S. Federal law. Third, water rights are part of the bundle of personal property rights, subject to the first two legal principles and reasonable regulation by the state. Fourth, most people in California get their water through contract. And Fifth, to some extent, the U.S. Constitution still applies particularly with regard to water diverted from navigable waterways (the Delta included) and with regard to water reserved by the Federal government pre-statehood or for native American uses.

    To add to OTPR, economists generally live in an assumed world. Regular people do not. Economic models and theories, and in that regard markets, do not always account for humanity, egotism, or fairness.

    I think tiered rates and incentives can be successfully used for most users. That said, it would be perfectly reasonable to set a per person cap on total water consumption. In addition, as already provided for in law and regulation, the state and water agencies can identify wasteful uses and revoke water rights or water service (whether they exercise those powers is another matter). For example, in the 1930’s, some farmers in Tulare lost senior water rights because they used it to drown gophers in their fields instead of letting it flow to junior rights holders. The Cal Supreme Court decided using water for pest control was wasteful and not a beneficial use of water. Another example pertains to the rich guy who insists on running his sprinklers all day. He can have his water service terminated for such wasteful use. Money is no object for someone like that. It is likely the only way to get that kind of person to fall in line is to use a real threat to shut off their water. If he starts pumping from and depleting the aquifer, there are legal actions that can be taken by others on the aquifer or the state. In some areas, such as the ground water basins in L.A., that water is already spoken for by many of the local agencies so he’d be likely to end up in court on criminal theft charges as well.

    How you use the water supplied by the local water agency is that agency’s business. Likewise, it is the business of all the other water agencies in the supply chain. The wholesale agencies have the easy job — just deliver less water. Especially if the water is supplied by contract, the agency can butt into your business a little more to understand your useage and tell you to use less. It can also install special devices that throttle its deliveries to you. There will likely not be enough water to go around in the future so we will eventually see some hard choices and decisions made on statewide and local levels to balance various water uses (lawns or alfalfa). :-)

  10. I am late to the game here, but (as an economist), I have to speak in favor of price rationing as an improvement over regulatory rationing (we’re looking for 20 percent here, right?)

    That rationing — in aggregate — can be achieved without harming equity by using tiered prices (as Mr. Kurtz mentions), and higher prices for “lifestyle use.” If the rich guy (or Pat Mulroy’s buddy, the Sultan of Brunei) wants to use MORE and pay for it, great — the extra revenue can be rebated to customers, which is a nice equity kicker. For more, read this: http://aguanomics.com/2009/05/aguanomic-metering.html