Advancing a Free Society

Water Woes

Friday, November 5, 2010

It goes without saying that modern civilization turns on the availability of clean, fresh water at reasonable cost. So it is not surprising that in the semi-arid American west, complex institutions evolved to determine who got access. And while these rights were often vaguely defined, until the 1990s there was sufficient water available through government infrastructure that had been built and paid for decades earlier to satisfy burgeoning demand.

Those halcyon days are over. Rapid population and income growth have pushed existing capacity to the limit. Meanwhile, the region’s notorious drought cycles have made supply more problematic. Now add to that picture two other concerns -- evidence that more water is needed to protect the environment and a scarcity of capital for expand storage and transport capacity -- and it has become clear to almost all the stakeholders that muddling through has become a very high-risk option.

In an economic culture that generally bows to the goddess of property rights, one might have expected that excess claims on existing water would have forced a clarification of right in water, followed by the use of market pricing both to encourage conservation and to reallocate water to those who valued it most. And there is every reason to believe that market would narrow price differences between uses and among localities, freeing water for high-value uses. Yet that process is only beginning, and it is by no means certain that market will come to the rescue. I explore why water is such a tough case and what might be done to speed the process.

Read the full study by Gary Libecap…