By Terry L. Anderson
"No one washes a rental car" is a truism that suggests that ownership is crucial to stewardship. We also might say, "No one conserves water" for the same reason--too often it's not clear who benefits from conserving water because it is unclear who owns the water. As long as water's cheap, why fix the leaky faucet or switch to an efficient irrigation system?
Making the ownership link is relatively easy, because water is already claimed by someone, either a municipality, individual farmers or a government agency.
In practice, however, claims compete with one another, especially when water is scarce. miners and farmers on the Western frontier in the 19th century devised the prior-appropriation system to resolve conflict by moving water to higher-valued uses, and trades between farmers have gone on for a century.
The recent drought in the Southeast has raised a red flag about scarcity. The best mechanism for allocating water is to clarify the ownership among municipal, agricultural, industrial and environmental users and allow trades. If Atlanta must buy water from lower-valued agricultural users, farmers will have an incentive to save water and sell it, and municipal consumers will face a higher price and thus an incentive to conserve.
Some worry that water markets will put an undue burden on the poor while the rich continue enjoying their country club lawns. But the poor could be issued water stamps, akin to food stamps, for buying water. Or suppliers could charge less for minimum amounts of water. needed for necessities and increase the price for luxuries.
When water rights are allocated through political processes, the poor usually do not get many of the initial rights, forcing them to purchase if they are to get any. And data from the Chilean water markets suggest the poor don't fare much better when water is traded on the open market. Perhaps there should be some guaranteed survival quantity of water that is a basic human right.
The problem is not a failure of water markets, but a failure of political allocation, which will not be rectified by preventing water markets from delivering water at a profit to all, regardless of income.
As water scarcity increases in the 21st century, water bureaucracies will bring more conflict, while water markets will foster more cooperation. With this choice, it will be impossible to keep a good water market down.