The Case Against Markets

by Joseph W. Dellapenna,

Document Type: Proceeding Paper

Part of: North American Water and Environment Congress & Destructive Water


Markets are much in vogue as ideal institutions for managing water both nationally and internationally. True markets, however, have seldom existed for water rights and there are good reasons for believing that they seldom will. Water is an ambient resource where the actions of any one user necessarily affect many other users. Thus, if true markets are to be relied on to allocate for particular uses and distribute water among users, the transaction costs of organizing contracts with all holders of water rights (let alone those holding less formal claims affected by a sale or lease) generally have been and will be prohibitive. Water, in short, is the quintessential public good for which markets simply do not work. Treating water as common property leads into a tragic over exploitation as soon as water becomes a scarce commodity. Market failure is also characteristic of treating the right to use water as a species of private property. The regulated riparian mode of water management avoids these problems by proceeding on the basis that water is a form of inherently public property about which basic allocation distribution decisions must be made by public agencies. Various economic incentives, including fees, taxes, and water banks, have a useful role to play in managing public property, but true markets must remain a phenomenon marginal to the enterprise of managing large quantities of water for the benefit of numerous users.

Subject Headings: Business management | Water management | Water rights | Water treatment | Water shortage | Water resources | Benefit cost ratios | Contracts and subcontracts

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