7 Feb 2014

Now THAT's a market!

(via PB) Buena Vista Water Storage District received "sky high" bids for its 12,000af of water.

I took bid data (thanks Lois!) and made this chart of supply and demand*

As you can see, demand was STRONG (there were bids for 63,000 af but only 12,000 af on offer).

This auction is useful for two reasons: (1) It shows that farmers are willing to pay a lot when water is scarce (no need to go to DC to take water from the environment) and (2) markets for water can work, when they are allowed. I hope that the sale closes and everyone gets water/paid.

If I were running this auction, I would allow multiple bids (so nobody was surprised at price or who won) AND set a single price based on the highest rejected bid (here, $1,100/af), which would reduce "shading" by buyers hoping to pay less for water. This (discriminatory) auction tends to lead to regret by buyers who bid more than $1,100 (more here [PDF]).

Bottom Line: Let markets allocate (economic) water when California is in shortage. you want water to go to its best uses (drought or not).

* Bids still need to be confirmed as eligible. That fact does not matter if we take thee as serious, which they probably are. The bid indicate where demand sits.


Damian Park said...

I was surprised at these bids. Regrettably they are only selling within kern county.

David Zetland said...

@Damian -- you gotta start local, to help people see that trades don't destroy the economy :0

RP said...

So, is this good use or bad use of a market mechanism?

David Zetland said...

@RP -- It's a good use, as it reshuffles water among millionaires, which keep them from going to DC to steal water off others (and the environment)

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