Water Markets: Priming the Invisible Pump

Economist Terry Anderson and attorney Pamela Snyder argue that the lessons we learned from the energy crisis in the 1970s are just as applicable to the impending water crisis: when government regulations kept fuel prices below market-clearing levels, shortages inevitably followed. When price controls blocked normal market mechanisms, the shortages persisted and government was forced to allocate artificially scarce resources.
The same laws of supply and demand are causing problems with the availability of water. Prices have been kept artificially low, and the inevitable overuse and shortages have occurred. Governments have responded by rationing water and initiating expensive water projects to increase the supply. Those policies have failed, however, and the authors argue that introducing the price mechanism into water policy will help alleviate shortages because higher prices will cause people to consume water more carefully.
Anderson and Snyder argue that water markets can also play an important role in solving the problem of pollution and ground water runoff. Markets not only facilitate instream flows that dilute pollution; they also help control discharges into streams and lakes. Before the Clean Water Act of 1972, for examples, courts used common law to define property rights in water, and lawsuits based on trespass, nuisance, and other torts were brought against polluters.
Fortunately, the use of water markets has increased during the past decade. Many environmentalists now find common ground with economists in advocating market prices for water. This book shows how water markets are working in the Untied States and around the world and where water policy is headed.