Economics

Smith (1977) argues that in order to efficiently respond to water resource management, it is pertinent to apply property rights (8). He used two characteristics of water to measure its value- the total availability of water and the individual demand of every property deed holder. He stresses the following benefits of water deeds appropriation according to paid deeds, creation of positive cash, potential to decrease pollution, redistribution of wealth will not greatly occur, relative price inflexibility to market value of surface land and improvements, potential community wealth increases, and the incentive to develop substitutes. He also acknowledges the disadvantages of his proposal, namely system operation costs, fraudulence, and other special costs and issues. My critique of Smiths proposal is that if we are going to put a price on water through water deeds, Coase (1960) asks if this is the proper social arrangement for dealing with the problem of depleting water resources, which can harm the rights of other people, who cannot purchase the water deeds they need, because they lack political or economic power, and the harm to sectors that will prefer substitutes, which can harm general social welfare (18).

Coase (1960) points out that whenever people think about B harming A, many immediately assert that B should be restrained (2). He argues, however, that the more important problem is should A be allowed to harm B or the other way around The problem, he states, is avoiding the greater harm. This is in line with opportunity costs, wherein removing the harm from one person transfers another form of harm to the person who will be restrained. The proposal of Smith considers the inefficient use of the Tucson Basin as harming many stakeholders. However, as he proposes the water deeds, he neglects to identify who will be harmed by this proposal. By this, I mean that he has not considered other possible harms, not just to the new water users, who will also be claiming for water rights, but also to other groups who will have difficulty in acquiring water deeds because of various reasons. Smith is only thinking of how polluters and inefficient users can be restrained by water deeds, but he has not carefully considered the social costs of the harm that this can do to different sectors also.

Second, Smith provides insightful benefits of water deeds, in terms of making water resource management a more efficient market-based sector. Coase, on the other hand, argues that this leads to faulty economic thinking, because it leads to the belief that merely removing the deficiency of inefficiency, as desirable in itself (43). As Coase indicates, the new market arrangement for the water deeds can do more harm than the original deficiency (43). I am referring to the harms to people who do not have the economic and political capacity to participate in the market. For instance, there are farmers who might need 57xi (xi refers to amount of water defined by Smith, 8), but since they can only pay for 30 xi, their water supply is limited, and they could not get the water they need to sustain their lands. If the government can provide water subsidies, these subsidies may be limited, and as in many real life practices, those who have political power will most likely get more water rights. In addition, when substitutes to water deeds become more cost-efficient, this can possibly lead to wide-scale transformation of agricultural land to grazing land or other commercial purposes, which need less water. As a result, agricultural productivity can sharply decrease, and this can affect the social welfare because food supply will decrease.

Smiths proposal constitutes a new social arrangement that has numerous social costs. These social costs are not greatly analyzed and computed, as part of the average cost of operating water deeds. As a result, Smith fails to consider the social costs to other people who cannot be assured that they can have water subsidies, when they have weak political and economic power, and the social costs due to the substitutes and trade-offs of water rights that can create greater economic harms.