26 Oct 2010

Conflict inside a public organization

I just wrote this paper. It's a retake on the issues I covered in my dissertation, distilled into 24 pp or so.

Conflict Inside a Public Organization: Origins, Costs, Persistence and Solutions

Abstract: It is difficult to understand conflict within a business groping for higher profits or a bureaucracy producing unmarketed products for unknown reasons. Conflict within the Metropolitan Water District of Southern California (MET) is easier to observe because it has lasted for over thirty years and because MET produces water for a small number of customers. This paper explores the origin and cost of conflict within MET, a cooperative of 26 member agencies. It then turns to the persistence of conflict and some suggestions for resolving conflicts. The key action requires that institutions designed to handle abundant water be reformed to manage scarce water. I present an economic solution using auction markets that would fit within MET's legal and operational structure, ration water for both equity and efficiency, and recognize past contributions and subsidies by MET's member agencies.

I'd love to get any feedback/comments...


  1. I don't you adequately addressed the problems presented by the fact that the members of MWD are themselves government monopolies. They are no more driven by rational considerations of reliability vs demand than are the employees of MWD.

    Looking more closely at San Diego, your paper states that it got subsidized water for years, then threw a tantrum when other members tried to recoup some of that subsidy by imposing a premium on water wheeled through the CRA. San Diego is also the agency most highly reliant on MWD, having failed to develop non-MWD systems.

    As I read your paper, in order for San Diego to get higher priority in MWD, it should pay a sum of money to other MWD member agencies (as to transfer certain priority rights). But this is essentially what the MWD member agencies imposed on San Diego as part of the IID wheeling deal, and SD had a huge hissy fit.

    I'm not sure, therefore, that you've proposed a solution to deal with San Diego's relationship to MWD that is consistent with the goals of San Diego's managers. It seems to me that the conflict and lack of transparency are in their interests (after all, they get to run to the Legislature and file lawsuits and posture about) even if that conflict is not in the interest of their constituents.

  2. @Francis -- I do address their motivation in terms of cost/benefit from action and reform.

    You misread "in order for San Diego to get higher priority in MWD" since SDCWA's action was to go outside MET for more water. My auction idea is for MET water, inside MET, among member agencies.

    I don't think they are benefiting from conflict/transparency issues by very much (except that, yes, they are using that as an excuse for desal). They hissy fits are a good idea GIVEN that no auction structure exists. If there were auctions, SDCWA would be a major buyer, for more water at lower prices, than they get now.

    Thanks for reading it :)

  3. I still don't follow. In times of shortage, either prices rise until the market clears or shortages get allocated. MWD is already short water and next year looks to be worse given water levels in Lake Mead.

    So, if MWD (with a change in legislation and several other legal obstacles overcome) goes to an auction format, the other agencies will let San Diego get water that formerly was theirs only if the other water supplies are cheaper.

    But MWD water is likely the cheapest around, assuming that water managers can figure out what to bid. It doesn't need lifting.

    Also, MWD's rates are going to be affected by its bond debt. And I bet that there are take-or-pay contracts out there that match up with the bond debt to create the needed revenue streams. I'm curious if you dug into MWD's various debt documents to see what flexibility the agency has in terms of setting rates and allocating water among its member agencies.

  4. @Francis -- MWD can run an auction tomorrow, with approval from its BoD. The auction will allocate whatever LIMITED water it has, at prices that reflect other sources, with revenue going to MET. If this revenue is less than expected at current prices (unlikely, since demand > supply now), then MET can raise addl $ for bonds via property taxes, within existing authorizations.


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