29 Jun 2012

Friday party

You are not important (via HZ) gives perspective:

Related, I liked this speech/montage, esp. "you gotta want it like you want to breathe."

Anything but water

  1. The key to development is NOT to get prices right, but institutions.

  2. A useful debunking of paternalism, even if it "benefits" us.

  3. "The UN's carbon credit trading program is a sham."

  4. A good podcast discussing how scientists try to defend their work when it fails the scientific method. Also see the links to background articles. We need more science, not more ideology.

  5. Over-management of food production by the Indian government leads to waste and hunger.

  6. I agree with Brad Delong on the Euro-debt crisis (banks write down Greek debt, etc.)

H/T to RM

28 Jun 2012

Macroeconomics in pictures

via Marginal Revolution:

and the interwebs:

Bottom Line: Bad governance leads to bad outcomes (100% karma effect)

Speed blogging

  1. Fair warning: The Global Water Grab -- A Primer by Kay and Frank of the Transnational Institute is a disaster: biased and lacking analytical depth. Its first example of a grab -- Mulholland "taking" water for LA --- is wrong. It fails to acknowledge the central role of government (TNI's favorite entity in any debate is a benevolent government, and those are EVERYWHERE, right?) in enabling/supporting unsustainable water use and/or grabs from traditional communities. I don't know if I am a "neoliberal economist" (wtf is that?), but I am surely a thinking one, and this pamphlet lacks thinking.

  2. Speaking of grabs and the like, there are special issues on land/water grabs in Water Alternatives [open access] and land grabs and green grabs in the Journal of Peasant Studies [$]. Warning: put on your neo-Marxist hat before engaging with these discourses!

  3. In other publishing news, check out this article on using simulations as a tool for negotiating Delta uses (in the NL, but applicable elsewhere) and managing water in the face of climate change (this example from Florida) [both open access].

  4. An interesting article on water management -- and sometimes trading! -- in China.

  5. Black & Veatch's report -- Strategic Directions in the U.S. Water Utility Industry -- has some useful discussions from the industry POV.

H/Ts to PK and TM

27 Jun 2012

Whose views?

The Third Industrial Revolution -- the review

I don't remember who recommended that I buy Jeremy Rifkin's book, which I recently skimmed.

Why did I skim? Because it's a boring, pedantic, wishful book. Rifkin is clearly a clever guy, but his intricate thesis on how we are moving to a "lateral world of renewable energy and social networking" strikes me as a caricature (or maybe duplicate) version of Thomas Friedman's broad strokes of big ideas with nothing to connect them.

Rifkin appears to have convinced bureaucrats that renewables are the way to go. That's does not mean that they are following the RIGHT way.

He also spends one of his 8 or 9 chapters saying how "economists don't get it, because they are stuck in a Newtonian world when the real world runs by thermodynamics." I don't know WHICH economists he's talked to, and I don't know why he feels a need to discredit economists (he blames the financial crisis on high oil prices, not a bubble in prices and debt), but he's way off target with "analysis" that sounds more like the babbling of a stoned high school physics student.*

I stopped reading it (like Tyler**) because both of these flaws are enough to convince me that his third industrial revolution is more about marketing his vision than understanding what we are doing now or predicting what we will do in the future.

Bottom Line: I give this book TWO stars for its decent discussion of entropy and thermodynamics, and how human activities affect the planet. But I recommend that you skip it and read this book instead.
* Not that those folks don't have heart and insight into bigger issues!

** Tyler Cowen is famous (to me) for dropping a book the moment it loses momentum or his interest (he's always looking for good plots and good ideas). He does so because the marginal cost of continuing is higher than the marginal benefit of starting another book. Tyler reads about 1-2 books per day (not kidding).

26 Jun 2012

Don't kill the joy of learning

This is golden advice:
Choose easy; work hard. That when you are young, it's very important to be exposed to a menu of possibilities. Find something you fall in love with. Find something that feels easy. Maybe it's piano, maybe it's violin, maybe it's Tae Kwan Do, maybe it's soccer, maybe it's chemistry--who knows what it is? But find that thing that when you do it, you forget you are even working. You lose track of time. And then once you find that thing, once you commit to it, you have to be reminded every single day to work hard. So, choose easy, work hard, is I think a maxim we should take into our schools. Instead of: What have you done at the moment? Largely for well-intentioned reasons and due to accountability, but we've almost gone in the opposite direction. We've become obsessed with these tasks and we teach the tasks, and we've made it harder than ever for kids to choose easy. And I think that's a shame.

How to become a water economist

JK writes:
I am a 19 year old undergraduate and I think I want to become a water-economist. I see that is your title (from google-searching 'water economist'). I am in the process of self-designing my major to be 'water economics' and look forward to working in the field. Do you have any general advice for me moving forward?
I came to be a water economist by accident, not on purpose, but here's my advice:
  • Your education should always focus on the "book learning" that's hard to get from people and life experience. That means more math and theory than reading and data, more learning from professors than practitioners.
  • A lifetime is a long time, so make sure you're prepared for a broad array of challenges -- even if you're a water economist for 30 years (I have been for 10 or so). The best people in any field are always learning and adapting.
  • Water is complicated, in the way it appears in law, engineering, ecology, politics and economics. You can't get so many degrees, but you can understand the basics of each discipline.
  • There's a HUGE difference between "academic" and "real" water management and policies. Most "water economists" are not academic. Many people in the water business practice some sort of economics without calling it such; some call themselves economists when they are not. Here's the result of a question I asked a few months ago on LinkedIn:

  • Remember that people use water in many ways. The engineers can deliver it to the moon if you want, but who are you and what do others want? That's the difference between "hard" water issues and "soft" water policies. Both sides need each other, but economists focus on the soft side.
  • There's sure to be a need for more water economists, since economics -- the study of how we allocate scare resources -- is becoming more relevant in water management.
Does anyone have more ideas/advice to add?

Also feel free to correct me or suggest ways that can help me improve!

25 Jun 2012

Resources for water economics?

RC writes:
I just started reading your book, and I'm finding it a very interesting read. Until recently I have worked as a water economist... I am enjoying your blog and was wondering whether there were other groups or forums for those interested in water economics?
My reply was that there are...
Can you readers provide any other water economics resources?

Monday funnies

This is beyond funny...

Poll results -- Regulations

Hey! There's a new poll (who reads this blog anyway?) on the right ===>

As far as environmental regulations are concerned, do you think that the federal government should [check all that apply]

Here are results from readers of this blog:
Delegate more regulations to states 28 votes
Issue more regulations 23 votes
Issue fewer regulations 16 votes
Revoke regulations 17 votes
Spend more time/money to enforcing regulations 50 votes
Do nothing (just right) 5 votes

...and here are results from Tim Kane's Q2 2012 Econ Blog Survey of 41 bloggers:
Delegate more regulations to states 17
Issue more regulations8
Issue fewer regulationsn/a
Revoke regulations21
Spend more time/money enforcing regulations19
Do nothing (just right)3

As you see, readers favored more enforcement; economics bloggers also favored that action, but put far more emphasis on revoking regulations. (Related: Lynne discusses how experimentation and information discovery can lead to better regulation.) This difference may be due to a general feeling that there are too many regulations on environmental activities, a general respect for regulations among readers, or different opinions (good/bad) on different regulations.

Bottom Line: "Informed individuals" prefer more emphasis on enforcing regulations and delegating regulations from federal to local authorities. There's some controversy over whether it's better to issue more regulations or revoke existing regulations.

22 Jun 2012

Friday party!

An astronaut's photos from space. Cool, but no need to have humans take these :-\

The politics of traffic congestion

Jay Wetmore sent these interesting observations:

I recently attended a forum at the Humphrey School of Public Affairs at the University of Minnesota, titled, "The Future of Transportation Finance: Who Will Pay?" The forum [video link] was hosted by former Congressman James Oberstar who is still heavily engaged in public policy and transportation issues. He gave a good performance and it is easy to see why he has been such a powerful figure during his very long public service career.

His framing of every issue though brought to mind the cliche that, "To a man with a hammer, everything looks like a nail." I'll rephrase that in honor of the congressman to: To a man with political power, everything looks like a collective action problem.

The first panel included; Oberstar, the CEO of the American Association of State Highway and Transportation Officials, the CEO of a railroad, a consulting engineer, and an employee of a state Department of Transportation (DOT). The consulting engineer is an advocate of tolling as a method for pricing congested roads, and the DOT employee is an expert and advocate for funding highways using a Vehicle Miles Traveled (VMT) method, that could include congestion pricing.

Based on the presentations, and the reactions to them, I doubt there will be a new federal transportation bill any time soon. It will be up to the "various" states to develop workable policies. I use the term workable because I don't think most people consider the current methods of funding roads or choosing construction projects to be optimum.

My own beliefs are that while many people consider roads to be a "Public Good" roads are neither non-rival nor non-excludable. This means providing roads requires different policies than providing for the Common Defense. Where roads are uncongested, they are a Club Good and should be managed as such. Where roads are congested they have all of the characteristics of a Private Good. Roads may be considered a Collective Good. We currently have many interconnected roadway sub-networks that are robustly interconnected to form a very large network. This network complies with Metcalfe's Law which makes it very valuable and difficult to duplicate (or compete with) using other systems such as rail transit.

Because many people see roads as, "Too important to be left to private ownership," * managing roads as a series of regulated monopolies - similar to other network utilities (electricity, gas, cable TV, telephone, water, sewer, etc.) is a concept worth exploring.

The second panel consisted of: a DOT Commissioner, the Executive Director for the US Chamber of Commerce, the worldwide account manager of a package express delivery company, the President of a state trucking association, the Executive Director for a transportation providers lobbying group, and an advocate for transit. So this group at least included a couple of representatives for transportation users. This group however, was devoid of new ideas and generally supported the status quo, but with more funding. This group included Rent Seekers and Free (or nearly free) Riders. The Chamber of Commerce representative and the package freight delivery service representative seemed to me to be more understanding of the positive externalities provided by a robust transportation network and seemed supportive of paying for performance.

In honor of this group, I'll modify the cliche to: To a lobbyist, everything looks like an opportunity for rent seeking.

The political problem** of concentrated benefits and diffuse costs is certainly evident in our transportation system. Jim Oberstar gave examples of several projects that he asserts represent projects of national interest, but given the costs and traffic figures he cited it I would make the case that they are projects of regional significance that can be funded by the beneficiaries of the projects.

Highways are mostly funded from user fees, and those user fees are generated at the local level, so I don't see efficiencies gained by sending those fees from the local level, to the national level, to be redistributed to the local level.

Over the last several decades a number of concepts to price roads have been implemented around the world. Singapore first instituted a congestion pricing cordon around its central business district in 1975. London and Stockholm are other large cities that that use a cordon system. In general cordon systems are expensive to operate, but they do reduce congestion.

Managed Lanes were first implemented in the United States on State Route 91 in Orange County, California [PDF]. Variable toll rates are used to keep some of the lanes in a free flow condition, allowing motorists a choice between higher time costs versus higher monetary costs. A number of refinements have been made on more recent Managed Lane projects including real-time pricing and money-back guarantees if the advertised time savings are not realized. It is interesting to note that at free-flow conditions the lanes have a much higher capacity than congested lanes have, so managed lanes often improve the performance of adjacent unmanaged lanes.

One of my favorite methods of increasing roadway capacity, in terms of people moved, is Casual Car Pooling. Known as "Slug Lines" in the Norther Virgina suburbs of Washington D.C., Casual Carpooling is a spontaneous organization, without government support, where individuals form car pools in real time at a number of popular locations. Other locations where this phenomenon occurs include the Oakland Bay Bridge in California and the Katy Freeway in Houston, Texas. There are several smart phone apps that are extending this model. Zimride is one of the latest start-ups to gain notoriety

The last management innovation I will mention is the granting of long-term concessions to private companies to manage roadways. The use of concessions only came to the United States in the past decade, but had been used internationally previously. The best known of these is the Indiana Toll Road Lease. The concession, granted in 2006, gives a consortium of private companies the responsibility to operate and maintain the toll road in accordance with an extensive contract specifying performance metrics and providing maximum toll rates. The state of Indiana collected an up-front fee of almost $4 billion dollars from the consortium for the privilege of operating the road. It will be interesting to see how the Indiana Toll Road performs relative to toll roads operated by governmental and quasi-governmental agencies over a period of 20 or more years.

Bottom Line: We have several transportation systems (for physical objects) that both compete with and compliment each other. These include, highway, railroad, air, water, and pipelines. Using the political process to grant subsidies and pick winners and losers tends to reduce the efficiency of these complex systems.

*Though I disagree. The long stalemates in passing federal transportation funding bills - this is a historical pattern - makes me think that the political process has failed and that roads are too important to be left to political whims.

** Or opportunity - depending on your outlook.

21 Jun 2012

Anything but water

Breaking vertical monopolies

The gains from division of labor are limited
by the size of the market -- Adam Smith (a Scot)
Read this and consider that it means:
Scotland is the first country in the world to give business and public sector customers a real chance to choose their supplier. As a result, many customers are now paying less for their water and sewerage services.

The introduction of water competition in Scotland has led to many beneficial changes for customers. It means that suppliers can attract customers by:
  • Offering tailored services.
  • Improving efficiency.
  • Giving advice on how to reduce water usage.
  • Controlling costs, meaning you could benefit from cheaper water.
  • Providing a higher standard of service.
What's going on here? Any NON-residential water customer in Scotland can contract for retail water service from any of four (and perhaps increasing) retail providers, all of whom contract for wholesale water from Scottish Water, which is charged with acquisition, treatment and delivery of water in the network.

England and Wales are planning to expand their limited version of this idea to more and more customers, turning them into consumers with choices. Such an expansion will add scale to the UK market, making it easier for new retailers to enter the Scotland-England-Wales market.

Bottom Line: The water business is full of monopolies that are NOT natural monopolies in every dimension. Regulators should look for ways to introduce competition into different dimensions of the water business, and Scottish Water has been experimenting with a novel approach for 130,000 customers since 2008.

20 Jun 2012

Anything but water

  1. One of my favorite examples of the importance of free markets and pricing was the way in which the Poles restored sanity in 1990 by deregulating prices: "...concentrate on the price of eggs. If eggs appeared, if eggs got cheaper, the market would be working. Eggs did appear. And then the price of eggs began to fall." This example, not coincidentally, reproduced the experience with the end of price controls in post-WWII Germany.

  2. The surprising math of cities and corporations: Cities get more efficient with population (but not in tree density!); corporations get less efficient with size (but not in lobbying!)

  3. The Amazon effect -- an interesting update on the macroeconomics of publishing.

  4. Are economics PhDs learning the wrong things? Yes, when you consider that professional advancement is controlled by older PhD economists, not value in a market. On a related vein, there's a new site for "reviewing my reviewer" of academic papers.

  5. Scientific literacy does not remove bias, since literate people are even more inclined to be biased.
H/T to CD

Order the End of Abundance in Europe

The book is slightly cheaper -- USD20 -- in the US, but European delivery will be cheaper and faster.*

Please tell me if you buy it -- and how that transaction works for you.

Britain @ GBP 15 (USD 24)

Germany @ EUR 19.26 (USD 25)

France @ EUR 18.30 (USD 23)

I guess the price differences reflect taxes?

* Kindle versions (UK @ GBP6.40 DE/FR @ EUR7.20 US @ USD9.99) have been available for awhile.

Rio+20 and planetary boundaries

I wrote these thoughts during an email discussion of Rio+20 and planetary boundaries:
  1. "Boundary" may be the wrong word. Economists talk about "damage functions," and human activities have been on that function for many centuries. What's happening now is that we are getting to a point where damages are noticeable in many places, detrimental to our quality of life, and building up for future delivery -- "en route" to arrive no matter what we do.

  2. From a political-economic perspective, many people (NOT corporations, nations or political parties) benefit from the current system (think coal plant with 20 years of life left in it), and they are more interested in the benefits they get as individuals than the damages that everyone experiences from a continuation of the status quo.

  3. People in (2) have managed to convince MANY people that action will damage their "way of life" (USA, eg) or "deserved future prosperity" (China, eg), so that these people opposed sustainable activities that are actually quite cheap to implement and sustain. Ending energy subsidies, for example, would free money for real anti-poverty actions and reduce environmental harm, but those subsidies provide disproportionate benefits to heavy energy users (the rich!).

  4. Rio+20 is not going to matter.* Humans have NEVER solved a global collective action problem.**

  5. We can adapt, some of us, but the cost of adaptation will be higher as long as (2) and (3) continue.
Bottom Line: Countries should concentrate on controlling their local pollution to build the acceptance and institutions necessary for tacking global pollution. Not sure that can happen fast enough to protect boundaries under stress.

* A recent update from Rio (via MM): Many civil society representatives expressed fears before the conference that negotiations would lead to a meaningless document, short on specific commitments and long on rhetoric.

** This statement attracted some opposition ("e.g., ozone and Montreal Protocol worked"), but that problem focused on a very few industrial/point source emitters. The difficulty in dealing with GHGs is greater by an order of magnitude.

19 Jun 2012

Speed blogging

  1. The river sharing problem: A review of the technical literature for policy economists and Time-Consistent Fair Water Sharing Agreements [$]. Both of these papers get at the difficult question of dividing costs and benefits among various water users.

  2. Two Central Basin Water Agency directors lost re-elections (partially) due to problems with corruption. They deny the problems, but at least there's SOME customer feedback. Good. In better news, a water agency uses eBay to acquire equipment at lower prices, saving money for ratepayers. Good.

  3. An interesting article on the gains (to ecosystems, water suppliers and firemen) from thinning forests that have gone too dense under "no burn" management.

  4. An OECD report on water QUALITY and agriculture, including details on quality treading, ocean eutrophication, etc. This OECD report discusses the most important elements required to tackle water scarcity: financing, governance and coherence (aka, nexuses, which I think to be a distraction where prices are concerned, but potentially important when bureaucrats are involved).

  5. An interesting op/ed pointing out how "outsiders" dismiss local concerns in their quest to mine water for export... in California.
H/Ts to EG and UG

Water Chat -- Tony Allan

I chatted recently with Tony at the airport (sorry about the background noise) about the "big flows" of virtual water among countries (a term he coined in the 1980s), how that affects national security, the negative impact of middleman market power on farmer incomes, how socialists (him) and libertarians (me) might agree on improving water management, and how water footprinting -- as a crude measure -- is inappropriate for signalling appropriate water use.

Listen to our 56 min talk [39MB MP3].

18 Jun 2012

Monday funnies

The North Carolina legislature tries to OUTLAW sea level rise. CrazyStupidWow.

Env-Econ also covered this move to Full Retard. RW sends some other funny comments here and here.

When the rivers run dry -- the review

Fred Pearce is an English journalist who's been covering water issues for 20+ years (he's just published a book on land grabs, review to come). I read the second edition of When the rivers run dry: Water -- the defining crisis of the twenty-first century (2006) several months ago.

The 320pp book -- one of the best general overviews of water problems that I've read [1] -- is organized into 10 sections with 34 short chapters. Each chapter describes how "a river runs dry" (abundance ends) in some part of the world. Here are some ideas I noted and thoughts I had while reading:
  • Small-scale farmers and fishermen who cannot make a living when water is directed to larger and more powerful groups will not only be unemployed -- they can turn to violence. (That's not an excuse to subsidize them; it's an excuse to protect their legal/traditional property rights and NOT subsidize others!)
  • The "risk-free" living of Indian farmers who use subsidized electricity to pump water that's sold at market prices to dyeing manufacturers (polluters) is an appalling example of unintended consequences. The same can be said of the "confident" engineers who sank so many wells into arsenic-laced groundwater in Bangladesh, contributing to the (ongoing) poisoning of millions.
  • The rise of our modern consumptive lifestyle since the Industrial Revolution is not just based on mining (and burning) fossil fuels, but mining (and using) fossil water. Neither trend is sustainable in terms of growth, consumption or the environment, and I doubt that human ingenuity will overcome the damages that come from these consumptions, either to maintain our own quality of life or restore the ecosystems that make that quality of life possible.
  • Fewer Saudi farmers are growing wheat in the desert (good!). Instead, they are growing alfalfa to feed to cows for milk (arg!). Along the same lines, note that the solution to high "virtual water" consumption is NOT to stop international trade but to make sure that virtual-water-exporting countries have sustainable management practices in place. These will raise the price of traded goods (food, textiles, etc.). Higher prices that reflect water scarcity will reduce demand for that product.
  • Israel may not have any wells in the West Bank, but their wells on the border of the West Bank draw water from the Mountain Aquifer that underlies both Israel and the West Bank. Those wells -- combined with Israeli controls over Palestinian wells (no new wells or repairs) -- means that Israel has a de facto "apartheid" water policy that transfers Palestinian water to Israelis and deprives Palestinian people and farmers of the water they could use for their own living and economic activities. These under-ground policies match above-ground settlements in nationalist cruelty.
  • Every civilization has diverted water to its own uses (without respect to nature), but the Soviets -- citing perhaps their typical excuse that the ends (a proletarian paradise) justifies the means -- took diversions and pollution to an extreme in implementing policies that disastrously damaged the Aral Sea. It's interesting to see these policies continued in Uzbekistan (but not so much in Kazakhstan) under its Stalinist dictator.
  • "Sewage irrigation" may be efficient in terms of directing water to another use, but it is not good for one's health. Better to clean the water in some way (the Israelis ARE good at that) before applying it to food -- or better -- fiber crops.
  • "Desalination is an [expensive] supply-side solution to a demand-side problem" (p. 255). Definitely.
  • The return of rain harvesting and check dams in rural India is doing a lot to conserve water and restore water tables. These low tech solutions are more efficient than big dams that evaporate water. Given that observation, ask yourself which is better, flood- or drip-irrigation? Flood can be better if the excess water is absorbed into groundwater (to be used later) instead of being held/stored in a surface reservoir that evaporates more water than is saved through "efficient" drip. Remember to keep track of water in the ENTIRE system.
  • A move away from hard infrastructure (dams, dikes, levees) towards natural infrastructure (flood plains, groundwater aquifers, wetlands) promises to deliver human safety, environmental health, and economic efficiency. Engineers who like concrete and politicians who like cutting ribbons may be upset with this change, but there are advantages to using the tools that Nature has refined over those that humans think they understand.
When I was planning TEoA, I was unsure whether to write a book discussing water issues around the world or in the western US. I ended up writing an "locationless" book, so that readers could mold the ideas and discussion to fit their local details. I am glad that I did this, especially since Pearce has had written an excellent book with examples from around the world. I think his book (like the ones with * below) complements TEoA, in the sense that he describes problems while I describe the forces underlying the problems and how to address them (books with ** describe problems, origins, and solutions).

Bottom Line: I give this book FIVE STARS for Pearce's varied examples, clear analysis and accurate message: we cannot continue to dry out our rivers for special interests and traditional methods of mismanagement. We, the people, will benefit from restoring water flows into their traditional paths, borrowing and repaying water as it passes by.

[1] Here are my reviews of other water-related books that you might consider reading -- after mine, of course :)

General discussions of water management, use and crisis:

* Blue Revolution (5 stars): Excellent examples and theme.
Take Me to the Source (5 stars): A nice wonder around the way we live with water.
* The Big Thirst (4 stars): Snappy writing, sometimes sloppy.
The Future of Water (4 stars): A look into the future but uneven quality.
* Unquenchable (4 stars): Good examples but perhaps too many.
Running Out of Water (3 stars): Verges on boring.
Aqua Shock (1 star): A waste of paper (or electrons).

Specialized discussions of a particular water dimension:

* Dead Pool (5 stars): Updating Cadillac Desert on mismanaged infrastructure in the western US.
** Heart of Dryness (5 stars): Botswana's Bushmen can thrive in the desert, despite the government.
** Priests and Programmers (5 stars): Amazing description of traditional irrigation in Bali.
* Water and the California Dream (5 stars): Excellent history of disastrous policies.
** Water Follies (5 stars): A fantastic discussion of the mismanagement of groundwater in the US.
** Water for Sale (5 stars): Why private water companies can help the poor.
Elixir: A History of Water and Humankind (4 stars): A detailed archaeologist's exploration (see Water below).
Governing the Tap (4 stars): A detailed look into water management districts in the US.
* Liquid Assets (4 stars): A deep look at water mismanagement in the Middle East.
Rivers of Gold (4 stars): Some case studies of water markets in the western US.
* Water: The Epic Struggle for Wealth, Power, and Civilization (4 stars): Excellent (see Elixir above).

NB: I give stars based on the author's fulfillment of the promises made on the cover. I am also biased in my reviews to the extent that they reflect my knowledge when I write them. I may be a tougher reviewer over time, but I TRY to review for readers who may not have read any/all of these books -- let alone worked on water issues for years!

15 Jun 2012

Friday party!

This is awesome. He was 17 when he made it...

Economies of scale

Log-Log Fig 3.5 from EPA (1980) shows IRS...
JD sent me some interesting reports on economies of scale in wastewater treatment plants.*

As most of you know, "increasing returns to scale" (IRS) refers to the increase in efficiency (or decrease in cost per unit of material handled) that you get from a larger facility. Greater efficiency must, however, be balanced against decreasing scales from, e.g., moving material over greater distances to a larger facility, less local customization, etc.

The water business has been characterized by IRS for many years (due to the low cost of energy, ease of digging up streets, importance of discharging water at a single point, etc.), but IRS makes less sense if treated wastewater is going to be used again (IPR, or water recycling), energy is expensive, centralized management is less responsive, etc.

Bottom Line: Make sure you include ALL costs before you go for an "efficient" scale facility.

* Check out these reports if you want more details:

EPA (1976) An analysis of construction cost treatments for wastewater treatment plants [PDF]
EPA (1979) Determining wastewater treatment costs for your community [PDF]
EPA (1980) Construction costs for wastewater treatment plants 1973-1978 [PDF]
MT DEQ (2007) Wastewater treatment performance and cost data to support an affordability analysis for water quality standards [PDF]

14 Jun 2012

Too much information?

Some ideas from Mike Young

Mike -- an Australian economist who's been working on water issues for well over a decade -- and I discussed these a few months back:
  1. If you want to encourage a community to innovate locally, from the ground up, then have them design a scheme to hit a quantifiable target and pay a reward for that WHEN it works, not before...

  2. If you want to lower barriers to implementation, then find the winners and losers and negotiate from there. Note that new policies change the mix of winners/losers.

  3. For policy analysis, one can spend time analyzing the laws, players and their interactions in an attempt to understand its implications (a "structural form" model of cause and effect), or one can trace money flows (a "reduced form" model). The latter is easier to do and drives at the political heart of most policies: a redistribution of costs and benefits among interest groups.

  4. People don't like change, so a message of change needs to be carefully presented.

  5. Command and control is more predictable than markets (e.g., C&T vs. carbon tax), even if hidden costs and skewed benefits make C&C less efficient. Watering regulations, for example, may say "20 min per day, 3 days per week: without acknowledging the transaction costs of adjusting sprinkler timers, ripping out lawns, anxiety, water cops, etc. Prices and markets deliver only estimated benefits (via elasticity), but it's easier to change prices to hit the target than C&C.

  6. Revenue from higher prices can create transfers from heavy to light users (no net cost increase).

  7. We need to make the opportunity cost of a bad policy relevant and clear (e.g., the lack of water markets meant that Westlands Water District engaged in lobbying and media battles).

  8. Stop playing politics with water (populism leads to shortages and special interests can capture rents). Design policies to treat water like a commodity, not a gift to an interest group (per Part 1 of TEoA).

  9. When trying to attain a number of goals (fiscal balance, water conservation), design one instrument for each goal. Don't change the goal. Here's the right way to design IBRs, but both Mike and I prefer to set a single, volumetric price based on costs and scarcity.

  10. Volumetric pricing ALONE will drive innovation to improve water efficiency (bulk or retail).

Thank you Elinor Ostrom

Elinor Ostrom died yesterday of cancer. She was 76 years old.

I only met Lin once, but I considered her my "intellectual grandmother." She did her PhD work on institutions for managing groundwater in Southern California. I did mine on institutions for allocating imported water in Southern California.

Lin's great contribution was to draw people's attention to the varied, complex and effective ways that local people solved local problems. She was not interested in abstract academic structures that were not found "in the wild."

She won the 2009 Nobel Prize in Economics, not because she was a she, but because she was a magnificent thinker and proponent of ideas and methods that humans used to manage their common, communal, private and public resources. Even better, she put her ideas into action at the Workshop in Political Theory and Policy Analysis, a center that she co-founded with her husband Vincent (also a water geek) and where many many people learned about institutions, described the institutions they knew, and advanced our understanding of how humans can live and thrive.

Bottom Line: The institutions Lin Ostrom created will continue to benefit us. RIP.

13 Jun 2012

From noise to action!

The steps from Said to Heard to Understood to Accepted are sometimes steep and slippery, but it's possible to climb them with someone.

It takes engagement, a desire to understand and a willingness to experiment and change from both sides.

I am disappointed to find that many people in the water business are neither inclined nor forced to consider these steps.

The mathematics of disaster

Someone at a conference made this wise observation:
The probability of disaster is often VERY small (~0) while its damage can be VERY big (~infinity).

These numbers, multiplied together, result in "undefined" expected damages from a disaster, which leads to a political deadlock when discussing the right policy for trying to prevent the disaster.

Apply this scenario to climate change, tsunamis in Japan and Indonesia, big failures in the water business, etc. to see why we were "surprised."
The best policy in these circumstances (besides risk-averse over-investments in physical defenses) is to put fluctuating prices on as many dimensions of disaster as possible, via insurance, water prices, carbon taxes, etc. Fluctuating prices make it easier for people to learn how to manage "everyday" fluctuations and thus prepare for BIG ones (cf. stockmarkets).

Bottom Line: Continuous information and price incentives makes it easier for people to prepare and manage essential services than occasional bureaucratic interventions (regulations) or rescues (bail outs) that are often too little, too late.

12 Jun 2012

My TEDx talk

Follow this link to watch the talk I gave at TEDx Wageningen.*

In the talk ("Pushing a String"), I spoke on the difference between markets/ecosystems in which push/pull competition produces more robust outcomes and water systems where push mechanisms give very little power to consumers, who are faced with the option of accepting the service/choices they are given or giving feedback that's ignored (i.e., pushing on a string). I go on to give fail examples of Las Vegas (sell you cheap water then tell you how to use it), Westlands Water District and the millenium development goal for clean drinking water. I also provide win examples to show how each of these fails could be reversed.

The talk was a challenge for me, not just because my mike fell off, but also because I was using no notes, trying to work a string (not very well, unfortunately), and speaking on this topic for the first time. That said, I think I did a decent job (7/10), and the chocolate was quite good.

Please let me know how you think, either through stars or comments here.

11 Jun 2012

Influential writing on California water?

From here, via SS:
To help celebrate the Water Education Foundation's 35th Anniversary, we are seeking your input and thoughts on the most influential written words on California water... reflect on the various written words and publications that have influenced you and others in the ongoing discourse around California's water resources...

Nominate up to five written documents that you believe have had a major influence on the water community and landscape in California. This may include books (non-fiction and fiction), articles, judicial opinions, legislation, agency reports, law reviews, professional journals, technical reports, poetry and Internet blogs.

Please provide the name of the publication and one paragraph explanation on why you believe the document has been influential and has thus contributed to the water landscape in California.

Email your submittal to Sue McClurg, smcclurg@watereducation.org
If you like my book or this blog, then please nominate one or both by 30 August!

Monday funnies

The American Water Works Associate is selling TEoA at their big annual conference in Dallas.

This photo made me notice the relative sizes of title fonts:

Bottom Line: It's not the size of your font but what you say with it!

Prices versus regulations and labels

At a recent conference, I heard a story of how labels can mislead consumers into making the "wrong" choice, e.g., when choosing between a water heater that's powered by electricity with 90% efficiency and one powered by natural gas that has 60% efficiency, a consumer who chooses the former will get the most efficient, but not the most economical heater, because quite a bit of electrical energy generated at the power plant gets lost while being transmitted to your house.

The person giving this example suggested that "more consumer education" was the solution to this "paradox" of a problem, but I have an easier answer: charge the right price for energy, a price that reflects the total cost of generation and transmission (as today) as well as local and global pollution.

A consumer would then see that the heater would cost, say, $200 to run on electricity and $100 to run on natural gas. No need to "educate" that consumer, affix "clean green" labels, etc.

Bottom Line: Labels (energy star, organic, fair trade, water smart, double-carbon negative, etc.) do more for manufacturers (who can manipulate label standards) and bureaucrats (who need to "certify" everything) than consumers and the environment. Set the right price for environmental and economic costs, and let consumers choose what they want.

8 Jun 2012

Friday party!


Convex beer and pizza

Economists have codified what appears to be a universal human taste, i.e., our "convex preferences" mean that we like to consume a mix of items (beer and pizza, fast but comfortable car, etc.) instead of 100 percent of an item.

The implication is not just that people need the freedom to consume a mix of items (not all or nothing) but also that it's good to hedge your bets -- don't put all you eggs in one basket.

Does this make sense? Can you give a counter-example of when you wanted only one thing for the duration of time that you had access to other substitutes or complements to that thing?

7 Jun 2012

Speed blogging

  1. A new project to test whether environmentally-responsible prawn farming in Africa can safely and sustainably eliminate a devastating human disease, schistosomiasis.

  2. Today’s water rates are too cheap, if anything.

  3. Robert Pyke (an experienced engineer) slaps down politicians [pdf] over their ignorance in "managing" California's Delta. Well done.

  4. Central Basin Water District sues critics for libel. Sounds like that they are not just corrupt (as accused), but scared and illogical (you can't libel a government agency).

  5. Modesto ID farmers are considering selling water to San Francisco to pay for infrastructure repairs. Good idea.
H/Ts to SJ, DL and RM

Green week, pricing and footprints

I spoke on water pricing at the EU's annual "Green Week," which had water as a theme this year.

Here's an MP3 of the entire 90 minute session [63 MB], which had two other speakers after me as well as some interesting questions and debate about halfway through. Here are my slides [PPS].

In addition to that exciting event, I witnessed a few other discussions on policy. Some were so bad (in terms of useful policies) that I was forced -- FORCED, I tell you! -- to tweet my objections in real time. Here are some highlights (oldest at bottom) by topic:

Regulations and prices
24 May: WIN: Cyprus water minister "poor people pay the same for water as anyone else. We give them income subsidies"

24 May: FAIL. EU water guy talking about water policy in future (supply and demand) without mentioning prices and markets.

23 May: Scatasta (EIB) nails it: "need prices for cost recovery AND prices for water as a resource"

23 May: My Q: what about price & reg tradeoffs? EurEau rep fumbled A: "we need prices, but we first look at what regs apply" :(

23 May: CC uncertainty means that you NEED flexibility and regs are less flexible than markets/prices.

23 May: Q: why not binding EU regs on water and energy efficiency? A: don't need binding targets if water/energy priced right!

22 May: EU needs to get religion on incentives to use/waste water. It's not all about "do the right thing" or regulation.

22 May: Can DK tell EU what to do when their water costs 10x the price of water in Italy? They have money; Italians are broke!

22 May: I wonder if all the EU-crats here are going to talk about tradeoffs as regulations increase cost of business? No free lunch!

24 May: FAIL: FR Ag lobbyist telling stories about himself, pretending all farmers are like him. Also playing food security card :(

24 May: FAIL: Cyprus Water minister: "no room for water trading in water poor area, but ok in water rich areas like Australia [sic]."

22 May: OMG! Ag lobbyist: "farmers only make 60% of average income in EU-27" so we need more subsidies.

22 May: EU farmers and US farmers say pay us if we do OR don't. What ever happened to "pay us for delivering food to market"?

22 May: Ag lobbyist says reward farmers (subsidies) for "going beyond" regulations. That's like paying someone for voluntary actions.

22 May: If you want to target the environment, take (buy) water from farmers (and regulate pollution), don't subsidize them

22 May: Ag lobbyist (Copa-Cogeca) says farmers "need" water for business and "deliver" environmental outcomes. More subsidies, please.

I have no idea why this topic was given disproportionate prominence by the "communications" team -- over the objections of the policy team -- but some attendees appeared to think that footprinting was going to become official EU policy. If that happens, then we are going to see many happy (but useless) consultants and the possibility of mismanagement on the scale of corn ethanol/biofuels.

24 May: WIN: Kevin Parris (OECD) says "waterfootprinting not useful for policy b/c ignores other input costs and comparative advantage."

24 May: FAIL: Ruth from WFN: "OECD doesn't understand footprinting, which should be used to connect policy sectors" (no, that's price).

24 May: OECD says waterfootprinting is unclear and not useful for policy.

24 May: waterfootprinting: good for water flows, but an indicator (like restaurant rating) is NOT a policy tool (restaurant food, prices, chairs)

23 May: Beate Werner (EEA) on footprinting: useful to raise awareness but says NOTHING about sustainable water management. Yes!

22 May: "use footprinting in water policy discussions" Kill me now.

22 May: "Is water use fair? EU footprint is higher so EU taking more than their fair share" Ridiculous! Same with wine consumption!

22 May: "WFN is studying water use for production in different parts of the world" May as well analyze salt put on everyone's lunch!

22 May: Footprinting is NOT the way to find/accomplish efficient water allocations. You need scarcity-adjusted mechanisms.*

22 May: Mathews wants mandatory footprinting. Oh shit. Waste of money and resources

22 May: Definitely an advertisement for WFN consulting. This NOT a high-level policy talk!

22 May: "Footprint is measure of humanity's pressure on water resources"? Not! Look at supply and demand

22 May: She claims it's global and needs to be measured. Hope this is not an advertisement for WFN consulting!

22 May: Ruth Mathews from Water footprinting network. This better be good.

Bottom Line: It's sad to see people pushing their interests (farmers wanting more subsidies) or preferred solutions (footprints for all!) over ideas and policies that maximize the social benefits from our water.

* Scientific American (via RM) published this graphic and text:
A vast amount of water is used to produce the food and products... Certain countries, such as India and the U.S., also export significant quantities of water in the form of food and products, despite their own robust consumption. Populous nations that have little land or little water are huge net importers... Those insights come from engineers Arjen Y. Hoekstra and Mesfin M. Mekonnen of the University of Twente in the Neth­erlands. Over the long term, net exporters may want to alter trade policies to avoid creating their own water shortages or raise prices to reflect the cost of increasingly scarce water resources. Inefficient water nations might improve agricultural practices. And net importers might lower exports to save water for domestic use.
Besides that one dose of reality (local management -- via bureaucracy or prices/markets -- that balances supply and demand), there is too much engineered "lowering" of exports or alterations of trade policies. Those policies rarely work in practice (politics) even if they could be based on sound measurement -- which they are not. For more on footprinting and virtual water, I recommend this essay by an Indian water expert over at the Global Water Forum.

6 Jun 2012

Water auctions

...happen in places where water markets are developed.* I just got this in an email:
Waterfind offered 30 parcels totalling 3600ml of NSW and Victorian High and Low reliability water. 2,211ml has either sold or is in final negotiation at the following prices:
  • Vic low reliability $130-$135,
  • Vic Goulburn and Murray high reliability $1,335 to $1,350 and
  • NSW high security Murray $1,430 to $1,470 per ml.
Pretty mundane information that I'd love to see in about 50 other countries!
* Here's a useful report [PDF] -- via MY -- analyzing a 2009 Australian government auction of "new" groundwater in New South Wales. Results: prices fluctuated!

Water prices, useless consultants and incentives

At the IWA, I gave a talk on global water tariffs (paper in press), during which time I presented a price elasticity estimate of -0.37 (meaning that a 10% increase in the price of retail water led to a -3.7% decrease in quantity demanded).

Here's the 17 min MP3 of my talk and my slides [PDF]

In my talk I concluded that "prices can have an impact on demand for water," so it was funny when Andrea Moisello presented far more data on water prices and demand in Italy and an estimated elasticity of -0.45 before concluding that "price changes are too weak to have an effect."

First, that's false, by the definition of an elasticity that's not zero. Second, he seemed interested in drawing that conclusion despite the evidence in front of his face.

When I went home that night and told this story to my hosts (Ireland does not currently charge for water), they did not agree with Andrea. "Of course you will use less water if you have to pay for it -- and even less if it's expensive."

Problem solved, so we had beers...

In other presentations, I took these notes:
  • Some people from IBM and CDM gave a sales pitch dressed up as plenary. They claimed that they could manage lots of data. I was more worried that they'd collect lots of data (plus fat fee$) and then mismanage the system and/or fail to consider the importance of institutions and incentives.

  • Someone pointed out that it's cheaper to pay a water/toilet attendant to protect facilities   -- and customers -- from abuse than it is to install new sources. Lifetime budgeting would take the costs of breakage and benefit from staffing (job creation!) into account.

  • A survey of women in Zambia showed that they were more aware of NGOs than local institutions. This is a FAIL, since NGOs spend more money on self-promotion without having a long-term role in the area.

5 Jun 2012

Water security and exporting US expertise

About a month ago, I attended Global Water Security: The Intelligence Community Assessment in Washington DC. This report was perhaps coincidental to the report released by the State Department a month earlier, but it indicates an increasing interest in competition over water in an era of scarcity.

Unfortunately, it seems that the intelligence community is, once again, in the land of oxymorons. The unclassified report is 16 pages and pretty worthless. Perhaps the classified, 80 page version is better, but we'll never know that.

Here are a few highlights of the worthlessness:
  1. The report was strong on central planning and weak on local, decentralized solutions. That's the wrong paradigm for water, but not for government representatives who like power.
  2. They claimed that "expertise" sits within the government, but that's certainly not allowed out of the building (economists within the government surely know how bad corn ethanol is for the economy, environment and small farmers, but corn ethanol policy is based on pork for agri-business and campaign contributions to corn state politicians).
  3. The report claimed that the US could export its water expertise around the world. hahahaha!
  4. The report claimed that many technological solutions existed. Yes, perhaps, but policies ALWAYS trump technology.
  5. There was some mention of water footprinting as a means of regulating trade. That's a stupid idea given the ways that footprinting can't be correctly measured (let alone the disregard exporters and politicians have for sustainability when there's money to be made). Better to limit water use to sustainable levels and allow exports of whatever results.
  6. Of the panelists, the two outsiders -- Ellen Laipson and Alexandra Cousteau -- made the most sense, perhaps because they have been outside their offices and DC, to learn about real problems.
Bottom Line: The national security folks do not know what they are talking about on sustainable water policies. I sure hope that they do not ruin water in the same way they have ruined peace.

Water and conflict at Oxford

I presented my paper on land and water grabs at the Oxford conference on water security -- a conference, I was VERY happy to see, that made recordings of all presentations. Check them out!

Here are my slides [PDF] and here is a recording of my presentation [MP3].* I was bemused to hear that we needed to turn off the recorders to have an "unofficial" chat about politics in Europe. What secret was revealed to the 30 people in the room? That Germany has a big influence on politics in Greece, Spain, et al. No shit.

The biggest thing that worried me about the content of this conference is how the "security" people are getting more interested in water. That's not a good development, since they are far less likely to care about sustainability or efficiency and far more likely to use water as a weapon. Watch your backs (and wells)!

* Yes, this is the same paper I presented more recently in DC. Just a different audience/emphasis.

4 Jun 2012

Monday funnies

There are more examples of "good timing" here.

Water policy and policy impacts

I am working on the EPI-Water project with about 25 people from 11 institutions in 9 EU states. We are studying the impact of economic policy instruments (EPIs) on water outcomes.

In January, we met in Berlin to discuss the outcomes from the first year, during which time we produced an "Assessment Framework" (AF) for evaluating the impact of EPIs on three criteria (economic, environmental, distributional), as mitigated by four factors (institutions, transaction costs, policy implementation, uncertainty).

We then used the AF to examine the performance of 30 case studies (20 in the EU and 10 abroad). I worked on two case studies, one on groundwater taxes in the Netherlands and another on implementing water metering in England and Wales [PDF].

I recommend the AF [PDF] to anyone interested in understanding policy performance with and without an EPI.

I recorded some presentations at the conference: Bottom Line: Water policy innovations will not be useful until we can measure their impacts.

1 Jun 2012

Friday party!

This is awesome crazy, especially with so many friends supporting them. Lovely.

Just another note on Facebook

Facebook treats its shareholders like its users, revealing information that suits its needs.

I'm not quitting FB, since (1) I use ad-block plus [get it!] to block ads (2) it's handy for communicating with a few people and (3) my FB profile does not reflect the real me, but the benefit:cost is only about 1.1:1.0 right now...