Friday, June 15, 2012

The Best Book on Water Economics

I just read this - - without question the most insightful and interesting book I have read on water economics.  The book is The End of Abundance: Economic Solutions to Water Scarcity by David Zetland.  Zetland also writes the blog Aquanomics.

Zetland writes the following - -

"What forces a water manager to change the way his organization manages its water?  Not much.  In most parts of the world, water service is provided by a monopoly, which means each organization chooses how to serve its local customers without fear of competition.  While some managers may pursue novelty and change because they have the internal drive to search for the best ideas, others wait until they are pushed.  Politicians may push them if they are not too busy.  Sometimes customers push, but customers lack bargaining power.  Sometimes drought pushes, but a drought may end before hard choices must be faced.  The same can be said for the irrigation districts that serve farmers, the engineers who run dams, and so on.  All of these water organizations exist in a world where competition is weak, oversight is intermittent, customers have few alternatives to taking the service they are given.  Although managers may earn gold stars for operating by the book, they may not be doing the best job at managing their customers' resources.

The end of abundance means water managers have more to worry about than recovering costs on the way to delivering water to anyone who demands it.  Managers need to either increase supply or reduce demand.  Although additional supply can be expensive, the biggest headache comes from allocating the cost of new supply among customers who claim others should pay more.  Reducing demand is even harder, since it requires rationing.  In a market, rationing occurs through higher prices, but water agencies often ration through bureaucratic rules.  These rules may be designed with good intentions, but they can be manipulated, unfair and inefficient.  In many cases, they add significant valve to the rights that were distributed long before scarcity became a concern."

Also - -

"Markets move water from those who have to those who want, using prices to balance supply and demand.  Markets may not be fair in outcomes (rich people can still buy more more than poor people), but they provide equal access.  Market prices accurately reflect value and scarcity, but they can be high.  Can we allocate water with markets and prices - without producing civil war, dry taps, dead ecosystems or thirsty people?  Can we do so in the presence of monopoly property rights and other institutions?  Yes and yes."

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