Arnold Kling  

Economics of Water

Jobs and Creative Destruction... Peak-load Pricing...

Water is generally viewed as a resource that requires centralized government management. However, Jacob Sullum shows that government does not necessarily allocate water rationally.

Since cotton is a water-intensive crop, the middle of a desert seemed a strange place to grow it. Similar oddities can be observed in other arid areas of the country where the federal government provides farmers with irrigation water at prices far below the cost of supplying it.

Sullum goes on to spell out other subsidies required to keep cotton farmers in business.

For Discussion. Could property rights in water be defined clearly enough to allow allocation by a market mechanism rather than by government?

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CATEGORIES: Microeconomics

COMMENTS (2 to date)
Pouncer writes:

I come to this question late; my apologies.

I dimly sense that the development of the market for bottled drinking water at roughly a dollar per pint (delivered via truck, in plastic bottles, to end consumer point of use) suggests that the municiple utilities' market for comparably drinkABLE water (delivered by pipe) has severely underpriced its product. Alternately, the municiple water services which are providing lawn-water, dish-water, bath-water, and clothes-washing-water at the CORRECT price are spending too much on bringing that product up to an excessively high quality standard -- drinkable.

I think we are seeing a market reconciliation of this via home water-treatment (filtration, ionization, "softening", etc.) which takes as a premise that the city water is of adequate quality for all-but-drinking.

Robert Prather writes:

I don't see why the manufacture -- potable water is a man-made product, after all -- and distribution couldn't be handled as a private matter. Working within the existing framework -- including treaties with Mexico regarding withdrawals -- private companies could purify and distribute the water up to the municipal level where distribution would likely remain a natural monopoly.

How does the government allocate the water at the source? By auction, I suppose. There would be some difficulties as to how to define the rights to withdraw certain amounts of water. For instance, the property right might take into account river levels that are abnormally low and any amount withdrawn would have to occur with downstream effects in mind.

I wonder if a developed market couldn't be used as a device against flooding. You obviously have an incentive to accumulate as much as possible given the surplus.

Short answer: yes, it could be done.

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