1. The Economics of Water Utilization Principles and Applications: Presented by Matt Bogard, M.S. Agricultural Economics

2. Economics  The study of how our wants and needs are made compatible, given constraints and decision making mechanisms of society.

3. Opportunity Costs: Of course I wish I were in school. I want to learn to read and write…. But how can I? My mother needs me to get water. Yeni Bazan, age 10, El Alto, Bolivia

4. Tradeoffs: Tradeoffs:  They [the factories] use so much water while we barely have enough for our basic needs, let alone to water our crops. Gopal Gujur, farmer, Rajasthan, India

5. Property Rights, Resource Allocation, Pollution & Externalities:  The conditions here are terrible. There is sewage everywhere. It pollutes our water. Most people use buckets and plastic bags for toilets. Our children suffer all the time from diarrhoea and other diseases because it is so filthy. Mary Akinyi, Kibera, Nairobi, Kenya Mary Akinyi, Kibera, Nairobi, Kenya

6. Property Rights, Resource Allocation, Pollution & Externalities:  The water is not good in this pond. We collect it because we have no alternative. All the animals drink from the pond as well as the community. Because of the water we are also getting different diseases.  Zenebech Jemel, Chobare Meno, Ethiopia  Quotes from-U.N. Human Development Report 2006 Beyond scarcity: Power, poverty and the global water crisis.

7. ECONOMICS  Given worldwide problems of water pollution, sanitation, and access- how can knowledge of economics help?

8. BALANCING COSTS AND BENEFITS: MARKET EQUILIBRIUM*

9. The Functions of Prices  @Equilibrium the choice to consume a good is compatible with societies choice to supply/ make the good available  Reflect scarcity and tradeoffs  Reflect information based on the knowledge and preferences of producers and consumers  Provide incentives to act on information  Require individuals to consider the impacts of their choices on others

10. SHORTAGE: Supplier Behavior  DECREASED INCENTIVES FOR EXPANSION/MAINTENANCE  P’ DOES NOT COVER COSTS

11. SHORTAGE: Demand Behavior  URBAN DWELLORS: With P’, do not conserve water  RURAL DWELLORS: not connected to main, seek less sanitary and often more expensive options

12. Applications

13. Applications  ‘The legacy of public funded water services in excessive quantities to the few at subsidized prices has created inefficient conditions resulting in severe environmental impacts on the resource itself’- UN World Water Development Report

14. Applications  Appropriative Water Rights –Western U.S.  Senior Rights- 1 st come 1 st served allocation  Overinvest in development/irrigation  Underinvest in conservation  Inefficient allocations could be improved if trades were allowed (Burness & Quirk, 1979)

15. Game Theory  The study of how people behave in strategic situations  What-if decision making  Used to model cooperative and noncooperative behavior

16. Example Water Game with Common Property Resource

17. Farmer Overpumps

18. Farmer Conserves

19. Rancher Overpumps

20. Rancher Conserves

21. Nash Equilibrium Strategy

22. Application "Groundwater is, in most situations, a common property resource with very high use value. It is also inherently vulnerable. Disposal of waste to aquifers and groundwater extraction affect neighboring users in ways that are often difficult to predict and quantify.....because the groundwater resource base common to large areas can easily be tapped through wells on small individual land holdings, its condition is dependent on the actions of many users. Unless each individual can be assured that others are behaving in ways that protect the resource base” -UNDSA

23. Solutions  Voluntary cooperation and social conventions – Elinor Ostrom  Assignment of Property Rights to allow trades to generate prices which reflect the opportunity costs of pumping –( Easter, Rosegrant & Dinar, 1999; Burness & Quirk, 1979)  Regulation

24. Water Pollution:

25. Water Pollution:*

27. Solutions  Taxes  Regulations- Polluter Pays  Tradeable Permits- Coase Theorem  Technological Change

28. The Coase Theorem (JLE, 1960)  External costs are a problem of barriers to entry and attenuation of property rights that prevent a bargaining solution  With Property Right Assignments 3 rd parties could bargain with polluters

29. The Coase Theorem  Suppliers would face opportunity costs equal to the value of effects on 3 rd parties: (e)  Consmers would have to pay a price that reflects these costs

30. The Coase Theorem  Suppliers would face opportunity costs equal to the value of effects on 3 rd parties: ‘e’  MCp(l,k,e) = MCs(l,k,e)

31. Applications

32. Applications- Amber Waves, USDA Sept 2008

33. Applications – Advanced Irrigation and Biotechnology (Arabiyat, 1999)

34. Challenges –Rent Seeking

35. Applications  Hernando Desoto- The Mystery of Capital  Tornell- The Voracity Effect  Both point out challenges that result from weak legal institutions, poorly enforced property rights, and special interests and the negative impact on economic development

36. REFERENCES  Coase, R.H. “The Problem of Social Cost.”Journal of Law and Economics, Vol. 3, Oct., 1960 (Oct., 1960), pp. 1-44  Human Development Report 2006 Published for the United Nations Development Programme (UNDP) Beyond scarcity: Power, poverty and the global water crisis Published for the United Nations Development (UNDP) Beyond scarcity: Power, poverty and the global water crisis Published for the United Nations Development Programme (UNDP) Programme (UNDP)  Appropriative Water Rights and the Efficient Allocation of Resources H. Stuart Burness and James P. Quirk The American Economic Review, Vol. 69, No. 1 (Mar., 1979), pp. 25-37  The World Bank Research Observer, vol. 14, no. 1 (February 1999), pp. 99–116 Formal and Informal Markets for Water: Institutions,Performance, and Constraints K. William Easter Mark W. Rosegrant Ariel Dinar  Recognizing and valueing the many faces of water. By: UNDESA (United Nations Department of Economic and Social Affairs) http://www.unesco.org/water/wwap/wwdr/pdf/chap13.pdf (last accessed October 2011)  Science 13 December 1968: Vol. 162 no. 3859 pp. 1243-1248 DOI: 10.1126/science.162.3859.1243 The Tragedy of the Commons. Garrett Hardin The Tragedy of the Commons. Garrett Hardin  Governing The Commons: The Evolution of Institutions for Collective Action-Elinor Ostrom 1990  Elinor Ostroma and Harini Nagendra. Insights on linking forests, trees, and people from the air, on the ground, PNAS December 19, 2006 vol. 103 no. 51 19224-19231  Creating Markets for Environmental Stewardship: Potential Benefits and Problems USDA Amber Waves September 2008 http://www.ers.usda.gov/AmberWaves/September08/Features/CreatingMarkets.htm http://www.ers.usda.gov/AmberWaves/September08/Features/CreatingMarkets.htm  The Mystery of Capital Why Capitalism Triumphs in the West and Fails Everywhere Else By HERNANDO DE SOTO  Arabiyat, T.S., Segarra, E. & Willis, D.B. (1999). Sophisticated irrigation technology and biotechnology adoption: Impacts on ground water conservation. AgBioForum, 2(2), 132-136. Available on the World Wide Web: http://www.agbioforum.org.