Privatization Issues

Water Markets

Many economists believe that water is a natural resource like any other and should be subject to the laws of supply and demand -- and market pricing. Free market environmental researchers Terry Anderson and Pamela Snyder of the Political Economy Research Center (PERC) make just this point in a new study.

  • Since the turn of the century, U. S. water use has risen at least six fold, possibly as much as nine fold, they say.

  • Nowhere is demand greater than in the West -- whose population has soared nearly 70 percent in 25 years.

  • Scarce water there has been misdirected because of a hodge-podge of regulations and federal subsidies -- which have created a lot of waste.

  • If farmers were encouraged by market pricing to use just 5 percent less water, the demands of urban users could be met for the next 25 years.

Since farmers' water is sold at subsidized rates -- to the tune of one-fiftieth its cost in some parts of Utah -- there is no incentive to save. As much as half of it seeps out of unlined irrigation ditches.

  • Conversely, a study of cotton growers in central California found that those who had to pay for water used 20 percent less -- and were 20 percent more productive -- than those who got it for free.

  • Where water rights can be traded, farmers have an incentive to use only what they need -- and can sell the surplus at a profit.

  • In Northern Colorado, where federal water can be traded, about one-third of it winds up in a rental market.

Some areas have set up electronic bulletin boards on which federal water entitlements can be bought and sold, and other areas have set up public water banks for deposits and withdrawals.

Source: Perspective, "Making Water Plentiful," Investor's Business Daily, February 17, 1997.

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