2 Dec 2009

Why businesses should want higher water prices

I will be attending a Water Footprinting conference today in San Francisco (as a reporter), and I look forward to hearing what people have to say. (I may also ask a few questions...)

Although I predict that many speakers will talk about best practices and shortages, I wonder if any of the speakers will discuss water prices.

If they do, I wonder if they will speak in favor of higher prices. For a business, higher prices (for everyone) make sense. If prices dampen demand, there will not be shortages and rationing. And rationing is much more expensive than paying a higher price. After all, it's better to be in business, with higher costs, than be shut down.

Although some may debate the problem of expensive water in a competitive business (what if your competition has access to cheaper water), I am ok with higher prices that reflect scarcity -- first -- because they prevent rationing in the short run, and -- second -- because they signal scarcity and sustainability in the long run.

Bottom Line Businesses should be concerned about the availability of their inputs before they worry about how much those inputs cost.

4 comments:

  1. WaterSource/WaterBank2 Dec 2009, 15:09:00

    "Price" indicates that you "own" something and desire to "buy or sell" it.

    To claim to "own" water in order to "price" it is generally not a simple matter.

    To pay a "price" to legally "own" water, especially in perpetutity, is worth every penny paid.

    Actual ownership of water for your individual beneficial use, with a basis in real LAW means you can rely upon it and thus make long term plans in a worst case scenario.

    Business needs/wants a guarantee! Life is full of uncertainties, but as much as possible, when it comes to a reliable water supply, the actual ownership of the water provides the greatest protection because the market place will determine not only the highest and best use, but also the real price.

    California's present water system simply cannot provide a lawfully reliable long term water product to price !

    The alternative should be investigated ...

    WaterSource/WaterBank waterrdw@yahoo.com

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  2. That's all well and good (and I believe it, to a degree), but a market depends upon a consumer wanting the cheapest price they can get. Couple that with quarterly margins instead of long-term sustainability, and there is no reason for them to change their ways.

    In fact, I don't believe you can adequately sell conservation in a market. It's got to be a... wait for it... a "super"-market decision. What I mean is, we have to make a societal choice through forces other than market forces to constrain ourselves.

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  3. @Josh -- you appear to NOT believe in the law of demand. Did you observe people using less gas when it was $4/gallon? If you did, then you know that prices work.

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  4. Oh, no, I completely, completely agree with the law of demand, and I know it would work as you describe. You misunderstand my comment.

    The law of demand requires that consumers push prices as low as they can at that moment. If people are thinking as consumers when they come to the decisionmaking table, and they can get the price to zero through other means, then they would be irrational not to do that.

    What I'm trying to say is, businesses would be behaving irrationally in the short term to charge themselves more, and I do not believe that they are capable of thinking long-term while they are in that mode. If an individual company breaks ranks and charges itself more, then it loses out to its competition in the short-term, and may not make it to the long-term.

    Last, I've been really respectful on your blog, even when I've disagreed passionately, and I would expect the same treatment, man. I hope I've at least shown that I understand basic economic concepts.

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