Arnold Kling

Water and Markets

Arnold Kling, Great Questions of Economics
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There is an interesting dispute going on in the Southwest United States concerning water. The Las Vegas Review-Journal writes

Policy-makers in the seven states had worked out a deal that would allow California 15 years to gradually reduce its overconsumption, locking in predictable water supplies in the remaining states. To make the deal work, though, agricultural areas, including the Imperial Valley, would have to use less water from the river and in fact transfer some of their allocation to Southern California city dwellers. Now, the entire agreement is in flux.

The Imperial Valley...gets its river water for free, paying only a $15.50 per acre-foot delivery charge...officials balked at the opportunity to sell 200,000 acre-feet of water, or about 6.5 percent of the valley's allocation, to San Diego for $258 an acre-foot -- nearly 17 times what the district now pays for the water.

A sizable number of Imperial Valley residents oppose the sale because it would force the region to take some crop land out of production

Discussion Question. If Imperial Valley has an opportunity to sell water for 17 times what it pays for water, then how much should it increase the price of water to its own residents, including farmers?

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