download EWE Lesson7 (.doc) file
- Scarcity, choices and opportunity cost
- Price and other incentives
- Cooperation through markets
- Property rights
- Institutions shape incentives
Standard 4: People respond predictably to positive and negative incentives.
Standard 5: Voluntary exchange occurs only when all participating parties expect to gain.
Standard 8: Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
Standard 10: Institutions evolve in market economies to help individuals and groups accomplish their goals. . . . [C]learly defined and well-enforced property rights, [are] essential to a market economy.
The pithy statement that “whiskey is for drinking; water is for fighting over,” is usually attributed to Mark Twain, commenting on life in gold rush California. Whatever its source, the observation seems remarkably prescient 150 years beyond that frontier. Rapid American population growth throughout the 19th and into the 20th centuries increased the scarcity of water so that today, it is one of our most valuable resources and most contentious issues. In the late 20th century, new demand for water in-stream for recreation and conservation further increased scarcity and challenged the efficacy of our allocative institutions. Systems of riparian rights and prior appropriation that served us well, historically, proved incapable of reallocating water to meet new demands – especially, but not only, when satisfaction of those demands requires leaving water in-stream and existing water resources are fully-appropriated. The frequency and intensity of contemporary conflicts over water indicate the need for institutional change. This lesson builds on the examination of water law in lessons 4 and 5 to address the question of what institutional arrangements can reduce conflict and allow us to best meet changing demands for water
As American population grew, so did competing demands for water and the existing water supply was over-allocated.. New reservoirs can increase supply but at a high cost. Complicating the problem is the fact that water law has historically limited the legal types of use. Given the constraints on supply, problem-solvers have begun to look for ways to better specify water ownership rights and allow for water transfer for a greater diversity of uses. Institutional changes are proving to be viable alternatives to allocate water among consumptive and non-consumptive uses and, importantly, are helping to motivate increased water conservation and use efficiency.
As the examples in earlier lessons illustrate, artificially low water prices encourage inefficient use and leave little for new water demands. At present 80 percent of water in the U.S. is used for agricultural production, and it is subsidized to keep the cost low to farmers – and to the citizens who purchase their products. The obvious question to ask is, “So what?” It seems reasonable to suppose that irrigation water ought to be affordable for farmers and citizens. But the assumption is problematic.
“Actually, low prices do cause harm to the environment and decrease the availability of water to large groups of people. Artificially low water prices provide no incentive for people to use the resource wisely. Typically, irrigation projects are less than 50 percent efficient, meaning that much of the water diverted for crops runs off, carrying with it pesticides, herbicides, and soil nutrients. Water-logging also occurs as farmers apply generous amounts of cheap water to their crops. As a result, it is estimated that 150 million hectares – 60 percent of the world’s total irrigated area – need some form of upgrade to remain productive. . . .
Inefficient water use is not confined to agriculture. Urban residents, too, usually do not pay the full cost of the water they use. Hence, green lawns cover desert cities, faucets drip continuously, and antiquated distribution systems leak badly. Boston’s delivery system lost nearly one-third of what was put into it until a leak detection program reduced losses to 12 percent. . . . (Social Education, October 1997, p. 338)
Water allocation in the United States commonly exceeds minimum in-stream flow needs for habitat and other desired water uses, meaning that additional appropriations are unlikely to meet demand by new users. To provide new water rights by increasing supply – building new reservoirs, for example – has proven to be prohibitively costly. The other alternative is reallocation. Some methods of reallocation – like increasing restrictions or changing regulations – increase conflict in communities, while others, like water marketing, show greater potential for low-cost, win-win outcomes. With these alternatives in mind, we can identify four methods of increasing or protecting in-stream flows necessary to meet environmental and recreational demands.Scarborough 2010 p 9).
- Appropriating water: Private or public parties may apply for rights for in-stream flow. This can be successful if there is sufficient water flow to allow for additional water allocation. Much of the water in the United States, however, has already been allocated under diversionary beneficial use doctrines. This leaves little to allocate to in-stream flow, particularly in low flow years when the water is needed the most.
- State regulations: State law or policy may be used to set minimum in-stream flow levels or limit further decline in flow by closing streams to new appropriations. If flow is already fully allocated, new minimum flow regulations are likely to conflict with existing water rights.
- Public trust doctrine and Endangered Species Act: Legal action taken in an attempt to deny or reduce the water claims of existing diversionary right holders to allow the water to be used for ‘the public interest.’ The process is contentious as existing users fight to protect their rights.
- Water markets: Defined as “any voluntary exchange between willing buyers and willing sellers of legal rights in water,” (Scarborough and Watson) water markets are cropping up in western states as laws are changed to allow acquisition of existing rights from current diversionary users. Laws written to allow trade at reasonable costs while protecting existing water rights facilitate exchanges and win-win outcomes for buyers and sellers of water.
All four methods are in use throughout the United States today, but the growing number of successful experiments in water marketing is attracting increasing attention and support. In the Lesson 7 activity students experience the win-win outcomes of water marketing as they compare the alternative methods of satisfying contemporary demands for in-stream water by environmentalists and recreational users.