1. water

2. a renewable resource: the hydrological cycle

3. the potential for water scarcity surface water (rivers lakes reservoirs) surface water (rivers lakes reservoirs) ground water (aquifers) ground water (aquifers) 90% fresh water 90% fresh water only 2.5% available on a renewable basis only 2.5% available on a renewable basis the rest is finite / depletable the rest is finite / depletable accumulated through geologic time, once used cannot recharge accumulated through geologic time, once used cannot recharge

4. other water issues quality further limits supply potable water quality further limits supply potable water land subsidence land subsidence settling / sinking of earth surface due to excessive withdrawals of gw settling / sinking of earth surface due to excessive withdrawals of gw

5. efficient allocations: surface vs. groundwater surface water surface water how to allocate a renewable supply among competing uses how to allocate a renewable supply among competing uses intergenerational effects less important (future supplies depend on natural phenomenon, e.g. rain, rather than current allocation) intergenerational effects less important (future supplies depend on natural phenomenon, e.g. rain, rather than current allocation) groundwater groundwater withdrawing now affects future supply withdrawing now affects future supply

6. efficient allocation: surface water 1. balance btw users marginal net benefit equal across users marginal net benefit equal across users 2. handle variability above-average and below-average flows must be accommodated above-average and below-average flows must be accommodated

7. efficient allocation: groundwater if withdrawal > recharge, eventual exhaust resource if withdrawal > recharge, eventual exhaust resource MEC rises over time as water table falls MEC rises over time as water table falls pumping would stop: pumping would stop: no water left no water left MC pumping > benefit of water or MC of backstop resource (desalination) MC pumping > benefit of water or MC of backstop resource (desalination) price rises over time until choke price or switch point price rises over time until choke price or switch point

8. the current allocation system riparian doctrine riparian doctrine early settlers early settlers adjacent owner got right adjacent owner got right as demand grew, less appropriate as demand grew, less appropriate diversion necessary diversion necessary prior-appropriation doctrine prior-appropriation doctrine gold rush / mining gold rush / mining first to arrive got right first to arrive got right usufruct usufruct state ownership; right to use state ownership; right to use federal govt took over; building dams, diverting water federal govt took over; building dams, diverting water

9. are these efficient allocation systems? restrictions on transfers restrictions on transfers hard to equalize marginal net benefits hard to equalize marginal net benefits federal reclamation projects federal reclamation projects regional vs. national benefits regional vs. national benefits water pricing water pricing both price and rate structure both price and rate structure should account for storage, treatment, distribution, and value of water (this often left out) should account for storage, treatment, distribution, and value of water (this often left out) common property problems common property problems low incentives to conserve low incentives to conserve

10. efficient pricing MC, not AC MC, not AC customer should be charged mc of supplying last unit customer should be charged mc of supplying last unit usually charged cost of running operation (historical costs) usually charged cost of running operation (historical costs) no scarcity rent no scarcity rent water inefficiently cheap; excessive demand for water water inefficiently cheap; excessive demand for water

11. potential remedies reduce restrictions on transfers reduce restrictions on transfers get rid of use it or lose it ethic get rid of use it or lose it ethic water markets/ water banks to transfer water water markets/ water banks to transfer water getting the prices right! getting the prices right!

12. agricultural pricing schemes

13. 2 part: volume pricing + fixed fee 2 part: volume pricing + fixed fee output pricing: linked to output not water use output pricing: linked to output not water use input pricing: assessed taxes on water-related input (not on water itself) input pricing: assessed taxes on water-related input (not on water itself) block rate / tiered pricing: seasonal peaked demand block rate / tiered pricing: seasonal peaked demand area pricing: how much area, not how much water (mc using extra water is zero!) area pricing: how much area, not how much water (mc using extra water is zero!)

14. utilities pricing: uniform & declining block rates (inefficient)

15. utilities pricing: inverted block & seasonal rates (potentially efficient)

16. US pricing structures