Levitt has blogged about how higher gas prices can be good for the country. Are higher water prices next?
Mercatus Center economist David Zetland argues that California’s water supply problems are really just water pricing problems. He recently called for a new price structure that would punish water guzzlers and encourage conservation.
Currently, Los Angeles residents pay just $2.80 for the first 885 gallons they use per day, and $3.40 for the next 885. Under Zetland’s plan, the first 75 gallons per day would be free, and each additional 75 gallons would cost $5.60. To get a sense of scale, consider that the average Los Angeles household of three uses 350 gallons of water a day, according to Zetland — that’s about seven bathtubs full.
Tap water is still far cheaper per gallon than bottled water. But would higher prices at the tap be as influential in changing water consumption as higher prices at the pump?
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As a resident of Atlanta, whose drought woes have made headlines a couple times in the last year, I can attest that it’s a lot more complicated than the ‘build more infrastructure’ technique. There are all sorts of complications related to the naturally limited supply of water, especially when the same water source is serving multiple jurisdictions. While generally free markets are good, some government regulation / legal monopolization can help ease those sorts of negotiations. Higher prices seem to be the answer to me.
A co-worker of mine has relatives that live in a city in California that has no water meters. In other words, they can’t even begin to charge for water consumption until they install meters.
They don’t currently pay for their water and, subsequently, don’t conserve either. And they’re not likely to pay in the very near future as installing water meters for every home in the city is going to be a bit of an undertaking.
Just start placing all the meters as close as possible to the consumer and, only then, start playing with the pricing scheme – in old apartment towers it is not infrequent to find meters shared by hundreds of units, so that individual consumption decisions do not affect the overall utility charge.
Morale: incentive schemes only work when they are effectively measurable
Is it just me or do the most vocal free marketers always seem to advocate for subsidies, price controls and other forms of market manipulation the moment someone suggests a good they desire might rise in price if left to the market? It seems especially energy, food and commodities that have limits on supply in one form or another.
To #6: The point of this discussion is to discuss curbing consumption for the future. The world will face water shortages down the road, so “building more infrastructure to bring in more water” is precisely the action we should be avoiding.
Free Marketeer,
Water companies are almost always monopolies, legal or not. The reason is that duplicating, triplicating or whatever the water distribution network sets a very, very, high cost of a new competitor entering the market. And if he does enter, it is easy for the old suppier to undercut his prices.
Nevertheless, there is a proper price for water which will tend to make water users and suppliers decisions efficient over time. It is the price that incorporates the costs of replacing the system of water supply. Not just rebuilding the one we have, but building anew the most efficient system we could now design. That is the best estimate of the unsubsidsed cost of water.
Paying that price all of a sudden would hurt, and often hurt bad. But moving to that price gradually over 10 or 20 years would make our economies more efficient as well as a good deal more “sustainable”.
Subsidising basic household use of water – for which there is a strong public health case – is easy. The first x gallons per month per household come at a cheap rate. That subsidy can be paid out of taxes or out of a bit extra on the cost of all other water; there is not much difference in who bears the cost.
@Free Thinker:
“Free Marketer, the problem is that there isn’t enough water so all the infrastructure won’t help.”
Desalinization plants. Expensive and energy intensive, but effective. Of course, California’s overloaded power grid couldn’t handle it. So you’d have to build more generating capacity. $$$$
Infrastructure improvements could solve it, but would it be worth the cost?
Thinker, everything, by definition, is scarce. Yes, some things are more scarce than others. My concern is a relatively few number of people deciding arbitrary prices. In any case, there’s no need for a “look into it” comment. Play nice.
Ryan above is on point. Everyone loves the free market (however mixed it is) and competition until they hate it because it doesn’t “work” for them.
Look, I’m not saying that prices wouldn’t necessarily rise in this particular situation, I’m just saying that here you have a monopoly which *generally* changes prices as it sees fit, and some folks who should know better are advocating higher prices, all the while wishing to save everyone some money. It just doesn’t make sense.
Consider also that yes, the government can declare a drought and essentially force people to ration. Not a great thing, but it can be a reasonable, temporary alternative.