David Zetland - The End of Abundance: Economic Solutions to Water Scarcity

Summary: Water shortages are caused by water management institutions that ignore scarcity. Economic tools can efficiently and fairly manage scarce water. Demand for water depends on technologies, tastes and prices.

In the rought year of 2009, San Diego faced a water shortage. Local water managers needed total demand to fall by 20 percent, so they ordered each household to cut its consumption by 20 percent below historic levels. This solution sounded good on paper, but it failed to consider that some people had been conserving water for years. The proposed rule would penalize water misers for consuming volumes that water wasters could use without facing penalties.

The public outcry surprised managers and politicians. They replaced the 20 percent plan with a regulation on lawn watering and used more water from storage. Crisis was averted, but the result failed to deliver reliability, efficiency, or fairness. San Diego's water managers claimed that they did their best in extreme conditions, but San Diego has struggled with water scarcity since 1946. They were saved in 1977 and 1992. They were saved in 2009. Will they always be saved?

These struggles are showing up more often in more places. They are not the result of incompetent water managers. They are the result of managers and their political overseers using outdated or inappropriate institutions (customs, rules and laws) that assume demands must be met, abundant supplies can always be found, and a functional and efficient system needs only strong pipes and breakeven revenues. Those institutions may not consider how the value of water varies with use, reconcile historic rights with current notions of fairness or efficiency, or appreciate the social and environmental costs of ad-hoc rationing in shortage.

This book uses economic tools to tackle the end of abundance and manage the scarcity that results from demand exceeding supply. These tools vary from the familiar (markets and prices) to the subtle (behavioral cues, property rights, and community associations). In all cases, they are meant to decentralize decisions, expand choices for individuals, and improve the way our societies manage water. The tools use economics because scarcity lies at the heart of economic thought and economists have a long history of managing scarcity to produce happy individuals and successful nations.

We'll start by looking at how poor economics ended the abundance that good engineering gave us.