Arnold Kling

Water Privatization, Continued

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Lynne Kiesling has two interesting posts on water privatization. In her first comment, she writes,


Suppose you are not persuaded by my argument that water utilities should be private companies and not municipal utilities. OK, but you could still contract out the management and operation of the water treatment and water delivery facilities to a private company that specializes in such services. Such a move could save taxpayers money and reduce operating costs, because the contractor has a comparative advantage in such services, more so than local governments. Such contracting out has delivered a lot of value in a lot of different countries over the past two decades.

In the follow-up, she writes,

Dynamic pricing of water would stir the creativity of entrepreneurs who would see an opportunity to profit from new technologies to treat wastewater and saltwater to make them potable, or at least usable in industrial and agricultural applications. Such a supply would simultaneously reduce strain on the supply of potable water.

For Discussion. Should water companies also offer different quality water at different prices?


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COMMENTS (21 to date)
David Thomson writes:

I’ve never even thought about selling water per its quality rating. My guess is that usually the same water we drink is used in industrial applications---which seems totally nuts. This is something that sounds very realistic, but the fanatical environmentalists will probably find some silly reason to object. After all, we wouldn’t want an inanimate object to come down with diarrhea!

Jim Dew writes:

Actually, this is already being done in some places, although I'm not sure about the pricing structure. In the Bahamas, lawns and gardens are watered with "gray water" which is not fit for human consumption. (I learned by making the mistake of running through a sprinkler system.) And isn't bottled water just the flip side - a premium for (supposedly) better quality water?

Brad Hutchings writes:

Yep. Very common for large landscaping customers (e.g. parks, condo associations, new office buildings) in South Orange County, CA.

I recall news from a few years ago where a repair crew hooked up the wrong pipes and directed non-potable water to a bunch of homes. Doh!

-Brad

Swan writes:

Totally off topic, but who do you think are the best socialist/communist economists out there? The links section of this site is very biased in favor of unrestrained markets.

Steve writes:

Here's one for ya, free marketeers--

The French are Socialists. We can agree on that. Yet, their water is so good, Americans import it in bottles!

I have never heard of the french importing OUR water. Why is this?

Jim Dew writes:

Re: imported French water. Google "Ricardo comparative advantage."

Boonton writes:

Doesn't a free market already exist for water? There are plenty of people that will deliever bottled water to your house and the supermarket is full of bottled water.

Many homes use well water for their cooking, bathing, cleaning etc. Municiple water is a natural monopoly but it hardly means water is socialized in the US.

Boonton writes:

For Discussion. Should water companies also offer different quality water at different prices?

Sure, just find a way to deliever all these different qualitie of water through the same pipe into a house!

Steve writes:

Re:"Ricardo comparative advantage"

Uhhh...Sure.. A government sets up a water system, vs our private one, and yet the government version is able to deliver water so good and so cheaply that it becomes cost effective to bottle it, put it on a boat, send it on a semi to my grocier where I buy it. That's socialism at work (in a good way). Not comparative advantage.

Arnold Kling writes:

One comment asked, "Totally off topic, but who do you think are the best socialist/communist economists out there? The links section of this site is very biased in favor of unrestrained markets. "

I think that there is a lot of room in between hard-core free-marketers and socialist/communist. I don't think there's much action worth following in the socialist/communist realm of economics nowadays.

While there is plenty of action on the left in economics, it is not as heavy in the blog world. Our left-leaning links are DeLong, Lotterman, Crooked Timber, and Irons. This may under-represent the left a bit, but I think that with the growth of weblogs our blogroll is going to under-represent everything at this point.

I think that DeLong and Lotterman are the best representatives of left-of-center thinking out there. But for out-and-out socialism or communism, I don't know of anyone who is credible in terms of economics and active on the Net.

Lawrance George Lux writes:

The von Mises blog Test made more Left of Center Economists, than has any other thing in the last twenty years. Most of Economics, today, is moving away from strict ideology, towards a a base of Consensus thought; it must be remembered there are still two magnetic Poles in this thought process. lgl

Steve writes:

Check again, Jimmy:

http://www.evian.com

Bottled in France. Owned by Dannone, a French company.

Don't believe that BS about getting it from a spring, though. It's Parisian tap water.

dsquared writes:

You are both right; Perrier water is owned by Nestle, Evian by Dannone.

Boonton writes:

"Uhhh...Sure.. A government sets up a water system, vs our private one, and yet the government version is able to deliver water so good and so cheaply that it becomes cost effective to bottle it, put it on a boat, send it on a semi to my grocier where I buy it. That's socialism at work (in a good way). Not comparative advantage."

You're spending more on bottled water per gallon than gas! Whatever you're buying, its not a substitute for tap water. If it was some enterprising person would just go to a nearby community with 'good water' fill up a truck of it and sell it to your grocier in jugs. Instead you're really buying style and maybe some sub-conscious beliefs that you're getting 'healthier' water.

Eric Krieg writes:

It is chlorine that usually gives tap water its nasty taste. Luckily, chlorine is very volatile. If you put some water in a jug and set it aside in your fridge for a few hours, the chlorine comes out and the water is almost indistinguishable from bottled water.

The millionaire next door does not drink bottled water. Between Evian and Starbucks it is no wonder that Americans do not save.

rvman writes:

>If it was some enterprising person would just go
>to a nearby community with 'good water' fill up
>a truck of it and sell it to your grocier in jugs

No, what you are paying for is someone to go to a nearby community with 'good water', run it through a charcoal filter, and sell it to your grocer in jugs. Look at the info on the side of your "store-brand" bottled (not spring or distilled) water. 9 times out of 10 it will say source: Fort Worth (or whatever) municipal water supply. Fort Worth seems to be the supplier of choice in my neck of the woods. Fort Worth municipal water comes out of a lake which is bordered by the runway for an old Air Force base with old pollution problems. It isn't that 'good'.

Boonton writes:

It's pretty clear there is a free market in water. You are perfectly free to bath in Evian if you wish and there are more than a few people who will be happy to sell you enough to bath in.

What isn't clear is that the tap water delievery system can be adapted to accomodate different 'brands' of water. If tap water is considered uniform like electricity then you may be able to have different municiple water suppliers, each one pumping water into a grid that would be regulated as a monopoly.

The question is whether the the physics of water grid is close enough to the electrical grid.

Steve writes:

Sure you could, Boonton. You could have some sort of additive to each of the different brands, making them each a different density. Then, you'd have some sort of "decoder" on the faucet end that would find the water with the same density that you are paying for, clean out that added element and send it out the tap! Kind of like cable and cable boxes.

You think this might be possible?

Boonton writes:

Possible I suppose but who would want to pay for such a thing? I certainly wouldn't.

Steve writes:

Neither would I, but when microchips and related items become cheaper and cheaper, we'll have more money to waste on stuff like that.

Boonton writes:

No really, the chemistry of adding 'branding chemicals' to the water and then removing them is nothing more than an entire level of waste. Also water sent through the taps is often 'produced' locally. Economies of scale, I suspect, would make a single producer the most efficient use of resources on the local level. Transporting water through long distances of pipes is very costly compared to electricity.

The monopoly can be overcome if you can lower transaction costs but they are very expensive.

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