13 Jun 2011

A little help for Pat Mulroy?

In this interview (via RM), she twists and turns between praising and damning Colorado River management:
I think taking apart the 1922 compact is a total waste of time [bad!] because, as you know, the compact was ratified by every legislature signed by every governor approved by Congress, signed by the president. There isn’t a legislator in any of the states that would quote lose supply that would get reelected having agreed to that kind of a regimen. Having said that, however, the compact is flexible enough [good!]. I mean its foundation is that seven states can do whatever seven states can agree to do. Now I believe I stand by that statement that the whole western premise of first in time first in right has lost its usefulness [bad!], particularly in relationship to community to community, city to city, state to state. I mean when you stand back and you look at that shortage regimen, if I have shortage let’s say I have to cut, and this is hypothetical, 100, 000 acre feet of use. If I can spread that 100,000 over the largest possible base, everybody’s share of the 100,000 becomes manageable, but if I take that 100,000 and try to offload it on my neighbor--at that point the burden becomes unbearable for him, and the political reactions start occurring.

It takes me full circle back to what a said before. I think there are enough flexibilities in this that we can overcome these first-in-time, first-in-right provisions that we hang on to so dearly [good!]. I mean, for example, we are paying the state of Arizona 350 million dollars to store their unused water in their groundwater basins for our future use. We’re covering their cost. That allows us during shortages, to the extent that Phoenix, Tucson, their cities aren’t shorted [sure about that?], to be able to take water out of that groundwater basin. During Metropolitan's shortage period all the water we were conserving in southern Nevada we were giving to southern California with the understanding that one day when we needed it we would get it back [sure about that?]. It’s that kind of relationship that will start blurring and muting the negative effects of the first in time first in right doctrine.
Here's an idea Pat:
  1. Put all the Colorado River water into an All-in-auction, with rights owned by 1922 claimants and shortages allocated according to seniority.
  2. Auction the water to the highest bidders (Vegas!), with the money going to net sellers (farmers!)
  3. Stop wasting money on Drop-2 reservoirs, desalination in Mexico, water grabs in Utah, water swaps with AZ and SoCal. 
  4. Use all the time you save negotiating and politicking to improve your golf game and collect awards for sustainable water management.
You know where to find me if you ever want to get serious about managing shortages on the Colorado.


Christa said...

Mulroy has spoken and written with more eloquence than we see here and at great length about why renegotiating the Colorado River Compact is politically infeasible. (28 J. Land Resources & Envtl. L. 105 (2008) ) is one example. I think her key statement here is:

There isn’t a legislator in any of the states that would "lose supply" that would get reelected having agreed to that kind of a regimen.

Anyone who has worked with western water issues knows that this is the political reality. Because the compact was negotiated over an inflated water supply, in this case, the net supply will go down. This means there will (on average) only be losers, and so almost everybody will be unhappy with the newly negotiated outcome. Thus renegotiation would be costly, unlikely to succeed, and unlikely to get Nevada any more water anyways. Mulroy is working within that fairly realistic assessment when she says don't bother.

You and Mulroy fundamentally agree on the necessity of institutional change in water allocation systems on the Colorado River. The key difference between your approaches is one of method. Mulroy has championed incremental changes that make minor _politically acceptable_ adjustments to institutions. Many of her adjustments do have initially minor effects, but they have the potential for long term consequences in legal precedent (water swaps) and incentives for conservation (Southern Nevada scrapped first in time first in right in 1991). You're proposing starting from (more or less) a clean slate in terms of allocation institutions, and building a whole new system. You do maintain property rights, but starting from a clean institutional slate is just as complex of a problem.

From what I've read, your all-in-auctions make good economic sense. However, I haven't seen you write a politically feasible way of getting them adopted in the agricultural irrigation districts your examples use. The endowment effect you discuss in your paper on AiA exists both in it's effect on trading behavior, and ALSO in it's effect on willingness to accept institutional change. This means that even if you've successfully created a mechanism to manage endowment effects and participation effects within your auction, it's also crucially important to figure out ways to manage them in the very political process of creating institutional change. What incentive would a net seller who (due to the endowment effect) presently is not willing to sell water at it's marginal value have to accept an institutional change that will make it seem like a good idea to sell at that same price?

David Zetland said...

@Christa -- nice comment. The AiA mechanism has two virtues: it leaves rights with traditional holders (in terms of the option to buy back at no cost) and allows reallocation within ANY existing governance/infrastructure.

Why would someone sell water in the AiA when he wouldn't normally sell? Because he wants to! There's nothing keeping an owner from "buying from himself" except for money foregone. Surely, we can trust a farmer (or State) with the responsibility to make that decision.

Yes, Mulroy wants to reallocate water slowly, but that method is EXTREMELY costly and inefficient.

Think of an AiA between AZ and NV where AZ has right of first refusal to buy AZ water offered to NV. That's fair. Blocking that trade or buying at a lower price is not fair. That's robbing the seller in AZ and buyer in NV.

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