18 June 2008

Public versus Private

MS asks some useful questions
The short version I got from you as a solution to this is to give people a free supply for personal use but then charge at cost. But then I've thought:
  1. If you privatize water supplies, how do you ensure that they give people a free supply?
  2. If the water is supplied publicly how do you avoid water being given away below cost due to public choice pressures?
In principle if there are property rights in water resources, then there is no water crisis, except insofar as water might become pricey for the poor.

Therefore the idea of a "water crisis" must be due to poorly defined property rights and/or water being distributed by means of governments subject to public choice pressures.

Then we are back to the solution as define property rights and privatize water supply - but then how do you ensure the poor get a free supply for personal use?

Am I missing any key conceptual elements here?
My "solution" to his conundrum is to give rights for a "basic" allocation to everyone (i.e., the poor will get water) and price remaining water via sustainable cost (30 year budgets) or -- better -- auctions.

Bottom Line: Property rights matter, and the institutions around them will define how well they work.

2 comments:

  1. David,

    Where is your dissertation? I suppose I should read that to get up to speed on your worldview.

    But until such time as I become informed, let me ignorantly ask: Why do people need an initial allocation of "free" water? Why can't that just be part of people's food stamps or whatever?

    I.e. if the market is truly allowed to supply water, then poor people just need enough money to buy it. Am I missing something?

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  2. My diss is at the link to the right.

    Free water is the SAME as free food stamps.

    Yes -- you're missing the moral argument that "water should be free". I don't particularly care for it (versus income support/block grant) but you can't get anywhere in water pricing debates without addressing the "free" issue.

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