Economics of Water Use
Commodity or Right?
Copyright © 2011 Gary A. Robbins. All rights reserved
Value of Water
• Commodity as oppose to a right
• Function of:
– Demand
– Supply (space and time dependent)
– Cost of providing it
• Quality
• Quantity
• Location
• Water-diamond paradox
– Water necessary for life but cheap, diamonds not
but expensive—uhh?
– All in cost of production!!!
Historically
• Three stages of supply
– Early cultural development
• Abundant water to meet needs
• Minimal conflicts
• Cheap water
– Urban and agricultural development
• Flood control, water diversions, dams
• Develop water markets
– Modern era
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Water demand can exceed supply
Competing uses
Conflicts
Government intervention and control
Water as Commodity
• Can be argued that water shortages in
part are due to not placing high enough
value on it.
• Under-priced water leads to waste,
inefficiency
– E.g., government subsidized irrigation
water from reservoirs.
Water as a Right
• Generally agreed that no human should be
denied water if they can not pay for it.
• Government has responsibility to assure you
are provided with water
– Are you aware of federal lay that requires food
establisments to provide you with a free glass of
water if asked—even Starbucks and the movies!!
• Humans vs animals and plants? Who has
more right?
Privatization of Water Supplies
• Two forms
– Buy up resources
– http://www.itt.com/waterbook/tide.asp
• Companies run municipal water plants
• Promises—better service, cheaper
– http://www.citizen.org/documents/privatizationfiascos.pdf
– Altanta story: more
• http://www.cbc.ca/news/features/water/atlanta.html
• Water Barons
Sustainable Development
• 1.1 billion people do not have access to
safe drinking water
• To change this, requires construction of
water delivery infrastructures
– Costly, government subsidiaries, high
costs for water in places that need it the
most
– Conservation
Water Marketing
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Sale or lease of water rights
Transfer of water rights between watersheds
Transfer of water between watersheds
Auctions of water (farm subsidiaries)
– In 2001, GA, irrigators were paid not to pump!
• Water Banking
– Government run, lease water from irrigation in
time of drought (CA, AZ, NV) for storage or supply
use
• Pollution Fees
– Discharge fees
– Trade discharge amounts amongst discharges