Insuring against Incompetance...

When I proposed that insurance companies be given the task of overseeing water managers (to make sure they do their jobs), someone asked if insurance companies already monitor another industry to make sure that they do not pollute (i.e., fail at their task). It turns out (thanks CL!) that they do:

...nine insurance companies are responsible for costs of cleaning up PCB pollution of the lower Fox River.

The jury had found that the insurance firms were liable through their contracts with paper company

The only way to keep a monopoly (private OR public) on task is to watch it. If the cost of watching accrues to some but the benefits accrue to all, then free-riding (and undermonitoring) may occur. One way to overcome this problem is to have all beneficiaries contribute to the cost of "professional" monitoring by an insurance company.

Bottom Line: Customers need to watch their water managers to make sure that prices are not too high (which leads to wasted money) and operations are not inefficient (which leads to shortages).