Given projected prices of $800-1,000/af, the auction will raise about $30 million. I am fully in favor of this development:
- It's for water in an adjudicated groundwater basin -- meaning little chance that the water will come from unsustainable overdrafting. Something I worry about with the $77 million sale.
- The sale is open to "local water agencies, Southland developers who under state law have to demonstrate there is enough water to supply new projects, and private investment groups that deal in natural resources." A big pool of competing developers means more competition and higher prices -- something that DWR failed to encourage with its beauty-contest guidelines for the Drought Water Bank.
- The water is coming from east of LA -- an area of heavy demand and (relatively) easy delivery infrastructure -- which means that bids are likely to be numerous and prices competitive.
- Best of all, the auction will help people understand the value of water. At $800/af, IID just let $144 million of water float away...
8 comments:
"just an allotment, not an annual right" ... $800/af
Please clarify. $800/AF/what ?
The prevailing interest rate is roughly 1% ... present worth value is $80,000/AF.
It would seem that the water must be available in perpetuity in order to solve development scenarios ...
Since you constantly talk about the need for functioning water markets, I would like it if you gave examples of the plusses and minuses of a water market. When would such a market, though well intentioned, fail in actual practice.
Also, I thought of you being on a horse about markets, a water horse, you know a hippopotamus. Great image.
Eric,
Great question regarding a "functioning water market" ...
Here are a few things that have to be thought through ...
The water product:
Ownership
Chain of title
Records of use
Need to Quiet Title
Priority
Historic delivery
Historic consumptive use
Legal limitations
Historically enforced
Historically ignored
New Environmental restraints
Minimum stream flows
The Market Place:
Internal in the district
Severable from district restriction
Historic Consumptive use confirmed
Price Per year or in perpetuity
Restraints on defined use(s)
Supply & Demand
Competition Actual or Imaginary
Potential competitors
procedure required
price expected
Governmental moritoriums in place
Governmental moritoriums threatened
Housing Developments
Commercial
Delivery System(s):
Storage facility condition
conveyance structure(s) condition
Capacity ... space available timely
Seepage and Evaporation losses
Flexibility:
Approval required by
Courts
State Agencies
Receiving structures
@Eric -- read this book: http://aguanomics.com/2009/07/rivers-of-gold-review.html
Water markets will fail when they do not take all costs into account. Besides the obvious (social costs), one also must consider transportation (infrastructure) costs, the transaction cost (regulations, etc.), information costs (water quality, loss measurement, etc.), political costs, and so on...
It's possible to integrate "tribal values" into water markets and prices; naive economists fail to do so.
@David
Could you please give an example of a situation in which a market, water or other, got very bureaucratic and dysfunctional and then became a working market? What were the causes that undid the normal bureaucratic need for power and regulations, even non functioning ones?
@Eric -- Airline deregulation in the US. The Soviet Union (choose any sector). GM vs. Toyota; USPS vs. FedEx; etc....
In all of your examples, I think, a more lightly regulated private company outcompeted its more heavily regulated competitor. The government regulators did not change their behavior but lost some control over the market.
Is this right?
Is this what you mean by a functioning water market?
@Eric -- no it's not right. It's more about incentives (make a profit or go out of business) than regulation.
Regulation *does* matter for a functioning water market but you also need buyers and sellers with profit motives...
Post a Comment