Water is a Girl's Best Friend: Examining the Water Valuation Dilemma

Abstract

Water allocation is currently controlled by policy that assigns a property right and hopes to protect the resource and its users. Markets can help fill this void and increase efficiency by assigning an accurate value to the good and dictating how the water is transferred and used.

Unfortunately, current markets lack the ability to send an accurate price signal that reflects the true value of water, leading to unintended consequences that could rapidly deplete resources rather than protect them. For the market to be accurate in pricing water, all costs must be included, allowing consumers to make an informed decision. Presently, consumers pay little for water, not allowing for considerations such as the dewatering of ecosystems and resource sustainability. Until price matches value, the increased use of markets will cause more harm than good. Market adjustments need to be made in the municipal sector to allow providers to set their rates in a way that does not simply recoup costs, but actually encourages conservation and efficiency. Water shortages are becoming more common as competition for access increases. Markets can be a useful corollary to policy, but only if they have appropriate inputs to convert price signal.

Market adjustment that must be made include internalizing the values of water such as ecosystems in the price so dewatering takes these impacts into consideration. Further, municipal water price structures need the ability to expand cost of service inclusions.

Keywords: Water Valuation, Water Scarcity, Adam Smith’s Paradox, Utility Theory, Public Trust Doctrine, Riparian Rights, Prior Appropriation, Hydraulic Fracturing, U.S. Bureau of Reclamation, Intrinsic Valuation, Water Market, Supply Demand, Water Sales.