When Worlds Collide: Business Meets Bureaucracy in the Water Sector

David Zetland

Aguanomics Solutions; PERC - Property and Environment Research Center

April 6, 2012

Increasing water scarcity has attracted more businesses and their high-powered market tools to a sector that has been dominated historically by organizations operating under low-powered incentives. This paper compares business and bureaucratic institutions through three interfaces. The first compares bureaucratic tools – such as water footprinting and conservation technologies – to business tools that rely on prices and markets to change water consumption. The second explores how high-powered incentives within a low-powered institutional setting can result in harmful outcomes, as when regulations on bottled water, hydraulic fracturing, and food exports mismatch costs and benefits. The third discusses how changes in information make business tools for managing risk from floods and drought more appropriate than bureaucratic tools developed in a past of uncertainty. Institutions that allocate water with appropriate incentives – high-powered business incentives for economic uses and low-powered bureaucratic incentives for social uses – will maximize social wealth, but mismatches will increase negative spillovers and waste resources.

Number of Pages in PDF File: 9

Keywords: incentives, institutions, water, opportunity cost, externalities

JEL Classification: D2, D4, D6, H1, L3

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Date posted: March 28, 2012 ; Last revised: April 12, 2012

Suggested Citation

Zetland, David, When Worlds Collide: Business Meets Bureaucracy in the Water Sector (April 6, 2012). Available at SSRN: http://ssrn.com/abstract=2029511 or http://dx.doi.org/10.2139/ssrn.2029511

Contact Information

David Zetland (Contact Author)
Aguanomics Solutions ( email )
PERC - Property and Environment Research Center
2048 Analysis Drive
Suite A
Bozeman, MT 59718
United States

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