Thoughts on Hausman's Critique of CVM

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May 26, 2008


Bill Goldschein said...

Who needs please when we've got guns

Jack Johnson-Sleep Through the Static

Bob Murphy said...

Great post! I'm glad that some people recognize water wars are about ill-defined property rights, rather than matters of justice and greed.

David Zetland said...

Jack -- I'll assume you're being sarcastic. Just in case you're not, check out the effectiveness of guns for settling disputes over land in the Middle East :)

justakim said...

Can you elaborate on schemes to reflect current conditions? Are you thinking distribution of %? I'm imagining it'd be difficult to figure out who should get how much of what when it's hard to tell how much there is until there isn't any.

justakim said...

I think that's Bill quoting Jack for amusement.

David Zetland said...

Bill -- my bad. Never heard of jack (until now :)

Justakim -- Current conditions are indeed a combination of risky (following a probability dist.) and unknown (impossible to predict). I tend to deal with this problem by allocating some rights on a per capita basis, e.g., 100/gal/day and then allocating the "unknown" remainder on a short-term basis, i.e., weekly or daily auction allocation. Put differently, I'd allocate a small, known and fixed amount far in advance and then allocate remaining quantities within a shorter and shorter timeframe as risk and uncertainty grew.

John Whitehead said...


Never heard of Jack Johnson? Isn't that the guy who did the Curious George soundtrack?

David Zetland said...

Hmmm... I should listen to my comic-book songs more often :)

DJ said...

Utah has a system of water rights that define how much water a person, company, or city can use. This makes a certain amount of sense. However, the rights have a "use it or lose it" character, in order to prevent hoarding-- the State can and does confiscate water rights that are not put to "beneficial use." This promotes waste. It's not uncommon to see farmers irrigating unplanted fields just to demonstrate that they're using their rights.

The bottom line: even where water is treated as a scarce resource, laws don't always have the consequences intended.

David Zetland said...


You are right that the laws do not have the intended consequences, but the problem -- in this case -- is that they do not take water scarcity seriously. If they did, they would allow rights' holders to trade (lease/sell) their water rights. That's the way that any efficient usufruct market would work.

The good news is that it's fairly easy to trade once rights are defined (after conveyance complications are taken into consideration). In many parts of California, they haven't even gotten the rights straight :(

justakim said...

While I see the effectiveness of the short-term auctions, I also see some concern in not being able to predict how much it's going to cost you for say, a season's crops. I suppose you can go further to develop futures contracts on water?

Mario said...

I perfectly agree with the necessity of water regulations. It may be interesting, though, reading the Oregon State University research quoted by the Economist few weeks ago:

"The world's 263 trans-boundary rivers (whose basins cover nearly half the land surface of the world) generate more co-operation than conflict."


@Justakim -- you've got the right question, and I was vague before. I'd structure water contracts in this way:
First 25% of estimated water -- lifeline rights to people
Next 25% -- sold on five year contracts
Next 25% -- sold on one year contracts
Last 25% -- sold in weekly/monthly spot markets

The key to making this work is that there's some storage. Less storage means that contracts will have to be shorter. Farmers with orchards would buy 5 year water. Farmers with annual crops would buy one year water and then top off with spot water... (urban, industrial would also participate)

@Mario -- I saw that article too, and it makes a good point. I think one reason that there is more cooperation than conflict is that it's "not worth" paying dead bodies to increase irrigation :)

David Zetland said...

The last comment was mine. Bloody typepad...

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