17 August 2009

The Tragedy of the Anti-Commons

Bretson and Hill have just published an important article [PDF] on the tragedy of the anti-commons in water markets. Unlike the tragedy of the commons (where anyone can exploit the resource), the tragedy of the anti-commons arises when everyone has a veto, preventing anyone from exploiting the resource.

And a word to those who look at "exploit" and say "hell yeah, let's stop that"... Exploitation means using water in any way -- for agricultural, environmental or urban purposes.

Here's the abstract:
In much of the American West water shortages are becoming an important concern. With increasing demands for water for municipal, industrial, and environmental uses, transfers of water from the currently predominant agricultural uses to these other uses should produce economic gains. Even though most commodity markets respond rapidly to price differentials and reduce those differentials over time, water transfers out of agriculture into higher value uses are not occurring very rapidly.

The existence of multiple rights of exclusion unbundled from the rights of use under the prior appropriation doctrine in the American West creates an anticommons that has impeded water transactions. This article explains the tragedy of the anticommons, describes the various rights of exclusion that create an anticommons in western water markets, and concludes with case studies that illustrate the difficulty of water transfers.
Anyone interested in water market MUST read this paper to understand many of the reasons that markets are not established or functional.*

Bottom Line: Change is only possible when we have freedom of action (compare US and Iranian elections), and we can't have that when too many people can veto that freedom.
* In an oft-cited 1984 article, Henry Vaux and Richard Howitt calculated that transfers from agricultural users would reach 10 percent of total supplies (about 3 maf). In his 1997 thesis [pdf], Newlin uses CALVIN to estimate potential water transfers in SoCal; trading 13 percent of water would reduce "scarcity costs" by 84 percent. Unfortunately, transfers to date have been much less than these modest estimates (perhaps 3-5 percent of ag water -- less than 500tafy).

9 comments:

  1. Thanks for this article. There are many other 'anti-commons', e.g. the UN.

    What is the right balance between commons and anti-commons? How do you get there? Is the balance point stable against reverting to commons or anti-commons?

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  2. WaterSource/WaterBank17 August, 2009 06:40

    Beware of using a broad brush ...

    A change of a water right is a matter of proving that there is no damage to the vested water rights of others. All legitimate opposition to a change must be addressed.

    Even junior appropriators are entitled to the conditions that existed when they made their appropriations.

    You are only entitled to change the use (or place of use) if you exactly balance the timing and amount that you have historically consumed ( consumptive use CU ) with the new use for the old established CU.

    If you cannot do so, it is an extended expanded use of your old water right and it will undoubtedly be DENIED due to a depletion in the water that others would otherwise receive.

    I prepared hundreds of change of water right applications for Court approval and only one did not achieve successful completion due to a lack of funding for a 2500 home subdivision.

    Marketing of water rights is not rocket science; it is a matter of providing proof to protect the rights of others in an honest market.

    WaterSource/WaterBank

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  3. Does the anti-commons situation change is each of the vetoers has to pay a credible penalty for exercising their veto?

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  4. 'is' should be 'if' in the previous comment.

    For what I am working on at the moment, the transaction costs are high not because of vetoes but because each of the agents has very tightly circumscribed rules and very limited authority. These rules and authority change constantly.

    So, to get a transaction to happen, you have to talk to endless agents until you find the one who can get the transactions to take place. In each case, you have to spend time getting to know the agent before you can decide whether they have the authority to be of use.

    This procedure takes lots of time.

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  5. Ray - What I am finding out is that things are much different in Colorado than they are in California.

    "Marketing of water rights is not rocket science; it is a matter of providing proof to protect the rights of others in an honest market."

    I agree it's not technically difficult, but the issue in California is that the rights are not well defined, not for the diverter, and not for the other agents that claim property rights to an economic livelihood, an environmental flow, etc.

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  6. I do not agree that any transaction costs imposed by veto rights are significant enough to deter transfers. Most "veto rights" are, as WaterSource/WaterBank pointed out, the rights of other appropriators to be free from impairment. If you are capable of proving up your historic use and capable of calculating your return flows, you should be able to get your transfer approved.

    Something about the analysis seems very circular to me ... I posit that there is a demand for water transfers, therefore I argue that some hidden costs prevents such transactions from occurring. Maybe the demand is not as extensive as the authors think.

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  7. WaterSource/WaterBank18 August, 2009 08:10

    Andrea is right.

    There is very little real demand/request for actual water. And of course, there is no demand for a large quantity of fresh water for insurance purposes in case the existing system is rendered partially or completely inoperable due to a large earthquake, terrorist attack, contamination, invasive species or a serious drought. Those in authority are only interested in crisis planning, ie Katrina. Southern California could have millions of acre feet of NON-TRIBUTARY fresh water already in storage in Lake Mead, but that would be thinking outside the water trough ...

    WaterSource/WaterBank waterrdw@yahoo.com

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  8. Andrea and WSWB (Ray) are wrong. There is a huge demand (just ask MET) for existing water (just to clarify why nobody is going for Ray's "non-trib" water...

    There is a lack of supply from some farmers, and a veto of supply from others, e.g., non-export regulations in CA counties and irrigation district regs everywhere...

    Of course, the only way to find out is by having a market (e.g., all in auctions) and those don't exist, so it's all opinion here...

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  9. WaterSource/WaterBank19 August, 2009 07:33

    DZ said: "Andrea and WSWB (Ray) are wrong. There is a huge demand (just ask MET) for existing water (just to clarify why nobody is going for Ray's "non-trib" water"...

    I assume by MET you mean the MWD. I am sure that MWD would confirm that there is a huge demand for "existing water", since MWD controls the supply. Any part of a NEW SUPPLY of a million acre feet a year would foul-up their monopoly. The MWD has certainly been offered a free confidential look at a new Source that can be developed that would help the entire SoCal region, but of course, when you have a lock on the monopoly both from a supply and a distribution standpoint, "economically" why would you want to make things better for anyone but yourselves ?

    WaterSource/WaterBank
    waterrdw@yahoo.com

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